TaxTMI 
TaxTMI 
2015 (1) TMI 158
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....lar. Special Civil Application No.645 of 2014 : The petitioner no.1 is a proprietary firm. The petitioner no.2 is a company registered under the Indian Companies Act, 1956, having its Registered Office within the State of Gujarat. The petitioner no.3 is the Director of the petitioner no.2 Company and the petitioner no.4 is the Guarantor and also a Director of the Petitioner no.2 Company. The petitioners availed of a loan facility from the respondent no.2 Punjab National Bank. The respondent no.2 Bank noticed that the loan account of the petitioners was a Non-Performing Asset (NPA) since 30th June 2012 with the outstanding of Rs. 1027 lac (as on the date of the NPA) including the interest at the applicable rate. Despite regular reminders from the bank for payment of the dues, no steps were taken by the petitioners in that regard. Therefore, the respondent no.2 Bank issued a show-cause notice dated 19th February 2013 followed by a second show cause notice dated 14th May 2013 and a final notice dated 8th January 2014 on the premise that the petitioners had defaulted in repayment of the loan amount and the funds borrowed from the Bank were siphoned off and not used for the ....
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....no.2 Bank under the RBI Master Circular be also quashed and set-aside. Submissions on behalf of the petitioners : Mr.Vishwas Shah and Mr.Mitul Shelat, the learned advocates appearing for the respective petitioners made the following submissions : The RBI Master Circular dated 1st July 2011 as well as the RBI Master Circular dated 2nd July 2012 in respect of the willful defaulters and the instructions contained therein are beyond the legislative competence of the RBI. The circular does not refer to any provision of law under which it has been issued. It has been submitted that the stance of the Reserve Bank of India that issuance of the Master Circular is in exercise of the powers conferred under Section 21 and Section 35-A of the Banking Regulation Act, 1949, is completely misplaced and erroneous. To fortify such submission, strong reliance has been placed on the decision of the Supreme Court in the case of Indian Banks' Association, Bombay and others v. M/s.Devkala Consultancy Service and others, (2004)11 SCC 1. The impugned provisions of the Circular are substantive provisions affecting the rights of the citizens. The substantive provisions can only be by way o....
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....prohibited from doing any other business for which he may have to raise the necessary funds by obtaining loan from a bank or any other financial institution. The Circular pre-supposes a default, which is otherwise required to be proved in accordance with law before the Debts Recovery Tribunal established under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (Act No.51/1993) or any other competent forum. The word "debt" is defined under Section 2(g) of the RDBI Act, 1993. The question whether there exists any debt or not is a question the bank is obliged to prove and satisfy before the Debts Recovery Tribunal under the RDBI Act, 1993, against the borrower. It has been submitted that the impugned circular which seeks to delegate the function of making a judicial inquiry and issue a declaration regarding the conduct of a borrower as a "willful default" entails serious consequences. Such adjudication is essentially judicial in nature as it involves adjudication of a lis. Such an essential primary function cannot be delegated to a non-judicial authority like a private bank or even a nationalized bank. In support of such submission, strong reliance has been ....
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....tion of India, Mr.Shelat has placed reliance on the following decisions : (i) Shri Anandi Mukta Sadguru Shree Muktajee Vandasjiswami Survarna Jayant Smarak Trust Vs. V.R. Rudani, AIR 1989 SC 1707; (ii) Praga Tools Corporation v. C.A. Imanual and others, AIR 1969 SC 1306; (iii) Apex Electricals v. ICICI Bank Ltd., 2003(2) GLR 1785; (iv) M/s A-One Mega Mart Pvt. Limited and others v. HDFC Bank and another, (2013)169 Punjab Law Reporter 688; (v) M/s. Inder Surgical v. Union of India and others, 2014(2) Punjab Law Reporter 377. In such circumstances referred to above, it has been prayed that the petitions merit consideration and the reliefs prayed for in the respective petitions be granted. Stance of the Reserve Bank of India : In response to the notice served upon the Reserve Bank of India, an affidavit-in-reply has been filed in the Special Civil Application No.645 of 2014 on behalf of the same duly sworn by its Assistant General Manager, Department of Banking Supervision, Reserve Bank of India, Ahmedabad. The stance of the Reserve Bank of India as could be deduced f....
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....e issued in that behalf issued by the RBI. In terms of Section 22(4) of the Banking Regulation Act, the RBI can cancel the license of the banking company. In terms of Section 35 of the Banking Regulation Act, the RBI has the power to conduct statutory inspection of any banking company or cause a scrutiny of the affairs of a banking company and its books of accounts. The RBI has the powers to issue directions under Section 35A of the Banking Regulation Act to the banking companies generally or to any banking company in particular in public interest or in the interest of the banking policy or to prevent the affairs of the banking company being conducted in a manner detrimental to the interest of its depositors or in a manner prejudicial to the interest of the banking company. The Banking Regulation Act envisages action to be taken by the RBI when RBI is satisfied that circumstances warrant such action. Section 36(1) of the Banking Regulation Act empowers the RBI to caution or prohibit banks against entering into certain transactions and generally give advice to any bank. As regards the issuance of directions/guidelines/ circulars etc. by the RBI, the necessary actions as empowe....
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.... Financial Institutions were required to submit to the RBI the details of willful defaulters with outstanding of Rs. 25 lac and above. The Scheme came into force with effect from 1st April 1999. Accordingly, banks and financial institutions started reporting such cases of willful defaults which occurred or were detected after 31st March 1999 on a quarterly basis to the RBI. Taking into consideration the concern expressed over the persistence of the 'willful default' in the financial system in the 8th Report of the Parliament's Standing Committee on Finance (Standing Committee), the RBI, in consultation with the Government of India, constituted a Working Group on Willful Defaulters (WGWD) under the Chairmanship of Shri S.S.Kohli, the then Chairman of the Indian Banks' Association in May 2011 for examining some of the recommendations of the 8th Report on the Parliament's Standing Committee on Financial Institutions. The Group submitted its report in November 2001. The recommendations of the Working Group of Willful Defaulters were further examined by an In-House Working Group constituted by the RBI. Accordingly, the banks/financial institutions were advised on ....
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....a solitary or isolated instance is not made the basis for imposing any penalty on the willful defaulters. The Master Circular clearly prescribes the measures required to be adopted by the banks and FIs in identifying and reporting the instances of willful default. Paragraph 3 of the Master Circular stipulates that the decision to classify a borrower as willful defaulter should be entrusted to a committee of higher functionaries of the bank/FI concerned headed by the Executive Director and consisting of two GMs/DGMs as decided by the Board of the Bank/FI. Further, the decision taken on classification of the willful defaulters should be well documented and supported by requisite evidence and should clearly spell out the reasons for which the borrower has been declared as willful defaulter in terms of the guidelines issued by the Bank. The bank/FI is also required to advise the borrower concerned about the proposal to classify him as willful defaulter along with the reasons therefore. The bank/FI is also required to provide a reasonable time to the borrower for making representation against the decision to a committee headed by the Chairman and Managing Director of the bank/FI concern....
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....of the Master Circular. The Reserve Bank of India has been continuously issuing guidelines on 'Willful Defaulters' in a phased manner commencing from 20th February 1999 to discourage the banks and financial institutions from granting any further financial aid to the willful defaulters, so as to act as a deterrent for the 'willful defaulters' and in order to safeguard banks from the risks of loan repayments, interest and liquidity. The guidelines contained in the impugned Master Circular have been issued at the instance of the Central Vigilance Commission and pursuant to the recommendations of the Working Groups. The instructions contained in the Master Circular are aimed at curbing the menace of non-performing assets in banks. The RBI, by issuing the said Circular, has taken few positive steps to protect the interests of banks and financial institutions and to ensure that a list of willful defaulters is known and made available to other banks and financial institutions. The said purpose cannot be said to be arbitrary and unjustified. The RBI's circulars on 'willful defaulters' are in consonance with the law of the land and are meant for ensuring trans....
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.... issue directions. Mr.Soparkar submitted that the Reserve Bank of India being a monetary regulator frames the banking policy. The Master Circular impugned in the two petitions is a part of the banking policy. Such banking policy is specified by the Reserve Bank of India from time to time in the interest of the banking system or monetary stability or sound economic growth. While formulating any banking policy, the Reserve Bank of India has to give due regard to the interest of the depositors and other resources of the bank. Mr.Soparkar submits that the court sitting in a writ jurisdiction under Article 226 of the Constitution may not examine the merits of the policy to find out, whether there could have been a better policy and interfere with such policy. Banking policy requires economic and fiscal expertise. According to Mr.Soparkar, the experts who are qualified to address the issues are the best people to take an appropriate decision in the interest of the entire economy of the nation. Mr.Soparkar laid much stress on the fact that the NPA accounts are a big threat to the economy of the nation. The borrowers, at times, misuse the amount disbursed by the bank and thereby c....
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....ntal right guaranteed under Article 19(1)(g) of the Constitution, yet this right is subject to a reasonable restriction under Article 19(6) of the Constitution. The reasonableness of the restriction has to be determined in an objective manner and has to be seen from the point of view of interest of the general public and not merely from the point of view of person upon whom the restrictions are imposed. Mr.Soparkar, therefore, submits that there being no merit in both the writ-applications, the same deserves to be rejected. ANALYSIS : Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for our consideration in these petitions is, whether the petitioners are entitled to any of the reliefs as prayed for in their petitions. It is a settled position of law that a statute can be invalidated or held unconstitutional -- (i) if it is ultra vires the Patent Act; (ii) if it is contrary to the statutory provisions other than those contained in the Parent Act; (iii) if law making power has been exercised in bad faith; ....
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.... securities without bank's knowledge; f) Fraudulent transactions by the borrower. Accordingly, banks and FIs started reporting all cases of willful defaults, which occurred or were detected after 31st March 1999 on a quarterly basis. It covered all non-performing borrowal accounts with outstandings (funded facilities and such non-funded facilities which are converted into funded facilities) aggregating Rs. 25 lakhs and above identified as willful default by a Committee of higher functionaries headed by the Executive Director and consisting of two GMs/DGMs. Banks/FIs were advised that they should examine all cases of willful defaults of Rs. 1.00 crore and above for filing of suits and also consider criminal action wherever instances of cheating/fraud by the defaulting borrowers were detected. In case of consortium/multiple lending, banks and FIs were advised that they report willful defaults to other participating/financing banks also. Cases of willful defaults at overseas branches were required be reported if such disclosure is permitted under the laws of the host country." The term "willful default" as contained in clause (2....
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....Group companies or other corporates by whatever modalities; (d) routing of funds through any bank other than the lender bank or members of consortium without prior permission of the lender; (e) investment in other companies by way of acquiring equities/ debt instruments without approval of lenders; (f) shortfall in deployment of funds vis-a-vis the amounts disbursed/drawn and the difference not being accounted for. 2.2.2 Siphoning of funds, referred to at para 2.1(c) above, should be construed to occur if any funds borrowed from banks/FIs are utilised for purposes un-related to the operations of the borrower, to the detriment of the financial health of the entity or of the lender. The decision as to whether a particular instance amounts to siphoning of funds would have to be a judgement of the lenders based on objective facts and circumstances of the case. The identification of the willful default should be made keeping in view the track record of the borrowers and should not be decided on the basis of ....
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.... Immediately after mentioning the penal measures in the Master Circular, it has been stated that it would be imperative on the part of the banks and financial institutions to put in place a transparent mechanism for the entire process so that the penal measures are not misused and the scope of such discretionary orders are kept to the barest minimum. To ensure that the identification of a willful defaulter is transparent and objective so as not to cause any inconvenience to the borrowers, the Master Circular, in clause (3), has set out Grievances Redressal Mechanism. The said clause reads as under : "3. Grievances Redressal Mechanism Banks/FIs should take the following measures in identifying and reporting instances of willful default: (i) With a view to imparting more objectivity in identifying cases of willful default, decisions to classify the borrower as willful defaulter should be entrusted to a Committee of higher functionaries headed by the Executive Director and consisting of two GMs/DGMs as decided by the Board of the concerned bank/FI. &nb....
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....r, which reads as under : "2. Guidelines issued on wilful defaulters Further, considering the concerns expressed over the persistence of willful default in the financial system in the 8th Report of the Parliament's Standing Committee on Finance on Financial Institutions, the Reserve Bank of India, in consultation with the Government of India, constituted in May 2001 a Working Group on Willful Defaulters (WGWD) under the Chairmanship of Shri S.S.Kohli, the then Chairman of the Indian Banks' Association, for examining some of the recommendations of the Committee. The Group submitted its report in November 2001. The recommendations of the WGWD were further examined by an In House Working Group constituted by the Reserve Bank. Accordingly, the Scheme was further revised by RBI on May 30, 2002. The above scheme was in addition to the Scheme of Disclosure of Information on Defaulting Borrowers of banks and FIs introduced in April 1994, vide RBI Circular DBOD.No.BC/CIS/47/20.16.002/94 dated 23 April 1994." POWER OF THE RESERVE BANK OF INDIA : We now proceed to deal with the first contention raised on behalf of....
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....as reflected in the preambles to and the provisions of the two legislations referred to above. The preamble to the Reserve Bank of India Act states that the bank is established, inter alia, generally to operate the currency and credit system of the country to its advantage. The powers under the Reserve Bank of India Act as also under the Banking Regulation Act have been conferred on the bank with a view to fulfill these objectives. The various powers under the Banking Regulation Act are related to public interest or the interest of banking policy. The expression "banking policy" has been defined in clause (ca) of section 5 of the Banking Regulation Act as under : "(ca) 'banking policy' means any policy which is specified from time to time by the Reserve Bank in the interest of monetary stability or sound economic growth, having due regard to the interests of the depositors, the volume of deposits and other resources of the bank and the need for equitable allocation and the efficient use of these deposits and resources." This definition and power conferred thereunder on the Reserve Bank to specify the policy clearly reflect the object that the banks ....
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....individual, (d) the maximum amount up to which, having regard to the considerations referred to in clause (c), guarantees may be given by a banking company on behalf of any one company, firm, association of persons or individual, and (e) the rate of interest and other terms and conditions on which advances or other financial accommodation may be made or guarantees may be given. (3) Every banking company shall be bound to comply with any directions given to it under this section." "35A : Power of the Reserve Bank to give directions (1) Where the Reserve Bank is satisfied that- (a) in the [public interest]; or [(aa) in the interest of banking policy; or] (b) to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking Company; or ....
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....onstrained the Reserve Bank to take many steps to strengthen the financial soundness of the banking system. Increasing the capital base of the banks is one such measure. Similarly, various other policy measures have been initiated to ensure better quality of assets, induction of professional management, diversified credit portfolio, improved accounting systems, transparency in balance-sheets, etc. The question for our consideration is, whether it will be open for this court to review the decisions which have been taken by a specialised body like the Reserve Bank of India and arrive at different conclusions. The scope of jurisdiction in such matters has been settled by various judgments of the Supreme Court and the same may be referred to at this stage. In Joseph Kuruvilla Vellukunnel v. Reserve Bank of India, AIR 1962 SC 1371, the position of the Reserve Bank of India is clearly stated in the following paragraphs which are referred to at pp.1379-80 and 1382 as under : "But the most important function of the Reserve Bank is to regulate the banking system generally. The Reserve Bank has been described as a bankers' b....
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....secured only by such guarantee, and we have no reason to think that the Reserve Bank acted in this case, or acts in other cases under pressure or from oblique motives. As was pointed out in another connection by this court in All India Bank Employees Association v. National Industrial Tribunal, AIR 1962 SC 171 at p.183 : "If it was not the Reserve Bank of India, the only other authority that could be entrusted with the function would be the Finance Ministry of the Government of India and that department would necessarily be guided by the Reserve Bank having regard to the intimate knowledge which the Reserve Bank has of the banking structure of the country as a whole and of the affairs of each bank in particular." ...... ..... ..... ..... Nor do the powers of the Reserve Bank end there. The Reserve bank not only has powers over banking companies while they are functioning, but it has also powers when the banking companies wish or are forced to cease to function. If a banking company wants to suspend its business and applies to the High Court for a moratorium, the application is not maintainable....
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....h the run on the bank, would sit down to decide after hearing whether to take action or not, while withdrawals were being at the rate of Rs. 7 lakhs per day. The emergency of the situations which may arise, is itself the justification for the procedure open under the Act and taken in this case. In our opinion, these grounds cannot be entertained. It is difficult to imagine that the Reserve Bank would act differently in another case. ..... ..... ..... ..... The learned Attorney General, on the other side, drew our attention to Virendra v. State of Punjab,, where it has been pointed out that in judging the reasonableness of any particular law 'the surrounding circumstances in which the impugned law came to be enacted, the underlying purpose of the enactment and the extent and urgency of the evil sought to be remedied' must also be considered. That case concerned the freedom of speech and its alleged curtailment by the Punjab Special Powers (Press) Act, 1956. In judging the reasonableness of the law from the angle of the exclusion of courts, this court observed : "Legislature had to ask i....
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.... the economy of the entire country and nobody can doubt the bona fides of the Reserve Bank in issuing the impugned directions of 1987. The Reserve Bank plays an important role in the economy and financial affairs of India and one of its important functions is to regulate the banking system in the country. It is the duty of the Reserve Bank to safeguard the economy and financial stability of the country. While examining the power conferred by section 58A of the Companies Act, 1956, on the Central Government to prescribe the limits up to which, the manner in which and the conditions subject to which deposits may be invited or accepted by non-banking companies, this court in Delhi Cloth and General Mills Co. Ltd. v. Union of India, AIR 1983 SC 937, observed as under : "Mischief was known and the regulatory measure was introduced to remedy the mischief. The conditions which can be prescribed to effectuate this purpose must, a fortiori, to be valid, fairly and reasonably, relate to checkmate the abuse of juggling with the depositors/investors hard earned money by the corporate sector and to confer upon them a measure of protection namely ava....
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....SC 1371 held that the RBI is 'a bankers' bank and 'lender of the last resort'. Its objective is to ensure monetary stability in India and to operate and regulate the credit system of the country. It has, therefore, to perform a delicate balance between the need to preserve and maintain the credit structure of the country by strengthening the rule as well as apparent credit structure of the banks operating in the country and the interest of depositors. In an underdeveloped country like ours, where majority of the population are illiterate and poor and are not conversant with banking operations and in underdeveloped money and capital market with mixed economy, the Constitution charges the State to prevent exploitation and so the RBI would play both promotional and regulatory roles. Thus the RBI occupies a place of 'pre-eminence' to ensure monetary discipline and to regulate the economy or the credit system of the country as an expert body. It also advises the Government in public finance and monetary regulations. The banks or non-banking institutions shall have to regulate their operations in accordance not only with the provisions of the Act but also the rule....
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....also a resident of India and/or not a resident of Mauritius at all." It is trite law that as long as an authority has power, which is traceable to a source, the mere fact that source of power is not indicated in an instrument does not render the instrument invalid. Although the learned advocates appearing on behalf of the petitioners have placed strong reliance on a decision of the Karnataka High Court in the case of E.Sathyanarayanan (supra), yet with due deference we are unable to subscribe to the views expressed by His Lordship, more particularly, when there are Supreme Court decisions on the issue. DELEGATED LEGISLATION : The above takes us to deal with the submission as regards the scope and power of the Reserve Bank of India to issue the Master Circular in exercise of powers under the delegated legislation. It is true that a delegated legislation can be challenged before the Courts on the ground of being ultra vires the parent Act. The Courts can adjudge the legality and validity of delegated legislation by applying the doctrine of ultra vires. The doctrine of ultra vires has two aspects: substantive and procedural. When delegated legislation goes beyond the sc....
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.... or oppressive or outrageous or directed to an unauthorised end or do not tend in some degree to the accomplishment of the objects of delegation, Court might well say, Legislature never intended to give authority to make such regulations, they are unreasonable and ultra vires. Thus, delegated legislation or subordinate legislation can be held valid only if it conforms exactly to the power granted. Regulations, whether made under the Constitution or a statute, must be intra vires the parent law under which power has been delegated. If the regulation-making power is conferred and the regulations made are in excess of that power the regulation would be void even if the Act provided that they shall have effect as if enacted in the Act. The validity of the regulation is always open to challenge on the ground that it is unauthorised. The validity of the delegated legislation is a question of vires, that is, whether or not the power has been exceeded or otherwise wrongfully exercised or is inconsistent with the parent Act. The doctrine of ultra vires quite often is one of the recognised principles/grounds to invalidate a delegated legislation. The basic principle of this doctrine is th....
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....n-La Roche v. Secretary of State for Trade and Industry, (1975) AC 295, Lord Diplock speaking for the House of Lords referred to this aspect and observed: "......the presumption that subordinate legislation is intra vires prevails in the absence of rebuttal, and that it cannot be rebutted except by a party to legal proceedings in a Court of competent jurisdiction who has locus standi to challenge the validity of the subordinate legislation in question." Thus, the Court while reviewing the validity of a delegated legislation, should presume such delegated legislation prima facie to be intra vires and it is for the person aggrieved to prove affirmatively that the presumption in favour of constitutionality, competence, fairness and reasonableness is unsustainable as held by the Apex Court in State of U. P. v. Baburam, AIR 1961 SC 751. The onus of establishing invalidity is on the challenger. The question whether a particular delegated legislation is in excess of the power of the supporting legislation conferred on the delegate, has to be determined with regard not only to specific provisions contained in the r....
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....and nothing more. If any management or supervision is to be done over the banking activities of a bank, it will have to be governed by banking policy. The 'banking policy' and 'banking' are not independent but coordinating subjects and both are covered within the supervisory powers of the Reserve Bank of India within the meaning of Section 35A of the Banking Regulation Act. Even otherwise, the directions issued by the Reserve Bank of India are in the larger interest of the public and it being a body of experts in banking, the directions given by it should not be lightly brushed aside. STATUTORY STATUS OF THE CIRCULAR: The above takes us now to deal with the submission as regards the statutory status of the Master Circular. It has been strenuously contended before us by the learned advocates appearing on behalf of the petitioners that the impugned Master Circular has no force in law and cannot be termed as a statutory circular. In short, the sum and substance of the submission canvassed on behalf of the petitioners is that, if the Reserve Bank of India wanted to issue a Master Circular laying down a policy for declaring the borrowers as willful defaulters an....
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....mmencement of the Constitution had the force of law in any Province of India or part thereof and hereafter has the force of law in any Part A State or Part C State or part thereof, but does not include any Act of Parliament of the United Kingdom or any Order in Council, rule or other instrument made under such Act". These definitions go to confirm that under our legal order "law" does not include only legislative enactments but it also includes rules, orders, notifications etc. made or issued by the Government or any subordinate authority in the exercise of delegated legislative power. ..............7. The question relating to a post-constitution order or notification in the context whether it amounts to law was considered by the Supreme Court in Jayantilal Amratlal v F. N. Rana, AIR 1964 SC 648....The Court further observed as follows: "This is not to say that every order issued by an executive authority has the force of law. If the order is purely administrative, or is not issued in exercise of any statutory authority it may not have the force of law. But where a general order is issued even by an executive ....
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....th the contention as regards the validity of the Master Circular on the basis of the application of the maxim 'nemo judex in causa sua'. The substance of the argument of the learned advocates appearing on behalf of the petitioners is that the bank itself will be a judge in its own cause, and in such circumstances, there will always be an element of personal bias which ultimately would affect the interest of the borrowers. Natural justice as is well-known is founded on two basic principles: (a) Audi alteram partem (b) Nemo judex in causa sua The duty to act fairly is the theme of the principles of natural justice. However, the extent of the duty to act fairly will normally be very limited where the authority exercises a function which does not culminate in a binding decision. The rule generally applies, at least with full force, only to the conduct leading directly to a final act of the decision, and not to the making of a preliminary decision or to an investigation designed to obtain information for the purpose of a report or a recommendation on which a subsequent decision may be founded. (see Halsbury's Laws of England,....
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....tary rule of natural justice that person trying a cause, though in a quasi-judicial proceeding, should not suffer from a personal bias. In this case the proceedings before the bank of inquiry is not a quasi-judicial proceedings. The Apex Court stated (at p. 1307): "We ought, however, to add that in the light of the general considerations which we have set out, it is of utmost importance that in appreciating evidence, the Court ought to adopt a very cautious, circumspect, and careful approach. If the evidence led by the parties in such a case is tested by cross-examination, it would be easier to determine where truth lies. But in the absence of cross-examination, appreciating the effect of competing affidavits is hot an easy matter. In such a case, the Court must always enquire on which side the probabilities lie and must scrutinise the affidavits very critically to determine which of them deserves to be believed. Naturally, in dealing with such a question of fact in appeal, we are normally inclined to attach importance to the findings of fact recorded by the High Court itself." Recently, in the case of U....
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....ullapalli Nageswara Rao case. We are unable to accept this submission. It is to be seen that there is a big difference in the facts of the two cases. The doctrine that 'no man can be a judge in his own cause' can be applied only to cases where the person concerned has a personal interest or has himself already done some act or taken a decision in the matter concerned. Merely because an officer of a corporation is named to be the authority, does not by itself bring into operation the doctrine 'no man can be a judge in his own cause'. Of course, in individual cases bias may be shown against a particular officer but in the absence of any proof of personal bias or connection merely because officers of a particular corporation are named as the authority does not mean that those officers would be biased. As has been held by the Constitution Bench, a Managing Director is a high-ranking officer. He is not personally interested in the transaction. There is no question of any bias or conflict between his interest and his duty. In Gullapalli Nageswara Rao case the Secretary who had framed the....
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....vires or bad in law. In the aforesaid context, we may quote with profit a decision of the Supreme Court in the case of People's Union for Civil Liberties v. Union of India, AIR 2004 SC 456, wherein the challenge was with regard to the constitutional validity of Prevention of Terrorism Act (15 of 2002) (POTA). The Supreme Court observed that a mere possibility of abuse or misuse of POTA could not be a ground to declare it unconstitutional. The court cannot go into and examine the need of POTA. The Supreme Court observed that it was a matter of policy. Once the legislation was passed, the Government had an obligation to exercise all available options to prevent terrorism within the bounds of the Constitution. Moreover, mere possibility of abuse could not be counted as a ground for denying the vesting of powers or for declaring a statute unconstitutional. The Supreme Court in the case of Sushil Kumar Sharma v. Union of India and others, (2005)6 SCC 281, held as under : "16. As observed in Maulavi Hussein Haji Abraham Umarji v. State of Gujarat, Unique Butyle Tube Industries (P) Ltd. v. U.P. Financial Corpn. and Padma Sundara Rao v. State ....
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....e company for a new venture or a project. It is true that right to do business is a fundamental right guaranteed under Article 19(1)(g) of the Constitution of India, but this right is subject to reasonable restriction under Article 19(6) of the Constitution of India. To test the reasonability of a restriction, the court must see the subject matter, extent of restriction, the mischief which it seeks to check, etc. In the aforesaid context, we may quote with profit a decision of the Supreme Court in the case of Md.Murtaza v. State of Assam, 2011(9) SCALE 526. The Supreme Court considered the issue as regards Article 19(1)(g) of the Constitution of India although in an altogether different factual background, yet the principle propounded and explained would be applicable to the case at hand. The observations of the Supreme Court in paragraphs 10 to 18 are worth noting: "10. It may be mentioned that to test the reasonability of a restriction we have to see the subject matter, extent of restriction, the mischief which it seeks to check, etc. The reasonableness of the restriction has to be determin....
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....best solution to the problem. The present is clearly an instance where this Court should not interfere with the steps taken by the respondents to resolve a pressing problem. In matters of policy the Courts have a limited role and it should only interfere with the same when it is clearly illegal. That clearly is not the case here. The impugned action is a salutary step for undoing a mischief, which was crying out for redress for a long time, and it is not illegal. 14. As observed by the Supreme Court in Mohd. Hanif Qureshi v. State of Bihar, AIR 1958 SC 731, the Court must presume, that the legislature understands and correctly appreciates the need of its own people. The legislature is free to recognize degrees of harm, and may confine its restrictions to those where the need is deemed to be the clearest. In our opinion, the same principle would apply to executive action also, unless there is clear violation of a statute or a constitutional provision. 15. In our opinion, the State should not be hampered by the Court in dealing with evils at their point of pressure. All legislation, including delegated legislation (such as the kind we are e....
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....sued the Master Circular and the policy decision to declare the promoters of the company as willful defaulters, it could not be said that the same is an unreasonable restriction violating Article 19(1)(g) of the Constitution of India. To sum up, the impugned circular does not suffer from the vice of lack of power. It has been issued in the interest of the banking business and is, thus, in public interest. It seeks to ensure greater transparency and uniformity in identification and treatment of the willful defaulters. It targets defaulters of dues in excess of Rs. 25 lac, thus laying down the threshold limit for application of the circular. It applies to only those defaulters who can be categorized as "willful" as defined in the circular. It, thus, does not cover those borrowers who are unable to pay the debt without there being any element of willfulness. Surely, no borrower can claim a vested right to seek financial assistance from a bank or a financial institution no matter how willful or chronic his defaults in repayment of past dues may have been. The circular, therefore, in general terms, is not arbitrary. However, the matter does not rest over here. There is a grey area....
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....ctors apart from receiving director's remuneration do not have any material pecuniary relationship or transactions with the company, its promoters, its management or its subsidiaries, which in the judgment of Board may affect their independent judgment. As a guiding principle of disclosure, no material fact should be suppressed while disclosing the names of a company that is a defaulter and the names of all directors should be published. However, while doing so, a suitable distinguishing remark should be made clarifying that the concerned person was an independent director. Similarly the names of directors who are nominees of government or financial institutions should also be reported but a suitable remark 'nominee director' should be incorporated. Therefore, against the names of Independent Directors and Nominee Directors, they should indicate the abbreviations "Ind" and "Nom" respectively in brackets to distinguish them from other directors." Thus, the above makes it clear that all the directors irrespective of their type are brought within the purview of the circular for the purpose of declaring them as willful defaulters. Although in clause (5.2), the Reserve Ba....
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....lled by the Board. Such person so appointed shall hold office up to the time which the Director who vacated office would have held office if he or she had not so vacated such office. 3. Additional Directors: If the Articles specifically so provide or enable, the Board has the discretion, where it feels it necessary and expedient, to appoint Additional Directors who will hold office until the next AGM. However, the number of Directors and Additional Directors together shall not exceed the maximum strength fixed in the Articles for the Board. 4. Alternate Director: If so authorized by the Articles or by a resolution passed by the company in general meeting, the Board may appoint an Alternate Director to act for a Director ("Original Director"), who is absent for whatever reason for a minimum period of three months from the State in which the meetings of the Board are ordinarily held. Such Alternate Director will hold office until such period that the Original Director would have held his or her office. However, any provision for automatic reappointment of retiring Directors applies to the Orig....
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....s will depend on the application of the legal provisions in question, the fiduciary duties involved and whether such nominee Director is to be regarded as being in control or in charge of the company and its activities. This determination ultimately turns on the specific facts and circumstances involved in each case. B. Classification under the Listing Agreement The Securities Contracts (Regulation) Act, 1956, read with the rules and regulations made thereunder, requires every company desirous of listing its shares on a recognized Indian stock exchange, to execute a listing agreement ("Agreement") with such Indian stock exchange. This Agreement is in a standard format (prescribed by the Securities Exchange Board of India ("SEBI")), as amended by SEBI from time to time. The Agreement provides for the following further categories of Directors: Categories under Listing Agreement 1. Executive Director; 2. Non-executive Director; and 3. Independent Director. &....
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.... i. the statutory audit firm or the internal audit firm that is associated with the company, and ii. the legal firms and consulting firms that have a material association with the company; e. is not a material supplier, service provider or customer or a lessor or lessee of the company, which may affect the independence of the Director; or f. he is not a substantial shareholder of the company, i.e., owning two percent (2%) or more of the block of voting shares; and g. he is not less than twenty-one (21) years of age. Nominee directors appointed by an institution that has invested in, or lent money to, the company are also treated as independent Directors." 135. In our opinion, all the directors cannot be held liable for the default in repayment of the loan which might be for varied reasons beyond the control of such directors. We find some element of arbitrariness in the policy of the Reserve Bank of India. 136. We may profitab....
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....t it is important to emphasize that the absence of arbitrary power is the first essential of the rule of law upon which our whole constitutional system is based. In a system governed by rule of law, discretion, when conferred upon executive authorities, must be confined within clearly defined limits. The rule of law from this point of view means that decisions should be made by the application of known principle or without any rule it is where he is. If a decision is taken without any principle or without any rule it is unpredictable and such a decision is the antithesis of a decision taken in accordance with the rule of law. (see Dicey, Law of Constitution, 10th edn. Introduction, cx). Law has reached its finest moments, stated Douglas, J. in United States v. Wunderlich, when it has freed man from the unlimited discretion of some ruler&. Where discretion is absolute, man has always suffered. It is in this sense that the rule of law may be said to be sworn enemy of caprice. Discretion, as Lord Mansfield stated it is classic terms in the case of John Wilkes, 'means sound discretion guided by law. It must be governed by rule, not humour: it must not be arbitrary, vague and fancif....
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.... such a concept. 1) In case of State Trading Corporation of India Ltd. v. The Commercial Tax Officer and others, reported in AIR 1963 Supreme Court 1811, nine Judge Bench of the Supreme Court considered the question whether a company can be considered a citizen and be permitted to approach Supreme Court under Article 32 of the Constitution of India for asserting its fundamental right under Article 19(1) of the Constitution. By majority judgement it was held that company being a juristic person is different from a citizen. Hidayatullah, J in his concurring but separate judgement made following observations on the question of effect of incorporation of a company: "29. We are dealing here with an incorporated company. The nature of the personality of an incorporated company which arises from a fiction of law, must be clearly under stood before we proceed to determine whether the word 'citizen' used in the Constitution generally or in Article 19 specially, covers an incorporated company. Unlike an unincorporated company, which has no separate existence and which t....
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....s being claimed by three persons who are admittedly citizens of India namely the President of India and the two secretaries. The contention on the other side is that the corporate veil cannot be pierced at all and that if it is, then behind that veil there is the Government of India. In my judgment it is not possible to pierce the veil of incorporation in our country to determine the citizenship of the members and then to give the corporation the benefit of Art. 19. If we did pierce the veil and saw that the corporation was identical with Government there would be difficulty in giving, relief unless we held that the State can be its own citizen. Nor is it possible to raise an irrebuttable presumption about the citizenship of the members. I have given detailed reasons already in answer to the first question posed for our decision. If we go by the corporate entity then we must hold that Art. 19 applies to natural persons. On that subject I have said a great deal but what I have said sums up to the following passage from Ducat v. Chicago, (1868) 48 III 172 quoted by Farnsworth (op. cit.) at p. 310 and approved by the United States Supreme ....
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....t itself is a statutory creation of piercing of corporate veil. Ordinarily, directors of a company even that of a private company would not be answerable for the tax dues of the company. Under subsection(1) of section 179 of the Act, however, subject to satisfaction of certain conditions, the directors can be held jointly and severally liable to pay the dues of the company." (Emphasis supplied) In In re National Bank of Wales, Ltd., (1899)2 Ch 629, it was held that, "A director who is acting honestly himself is entitled to trust the officers of the company not to conceal from him what they ought to report to him, if he has no reasonable ground for suspecting that they are deceiving him." Directors are not liable for all their mistakes but only for negligence which is in a business sense culpable or gross. Nor is a director liable for untrue representations made to the shareholders if he honestly believed the representations to be true and had at the time reasonable grounds for his belief. In Dovey v. Cory, (1901) AC 477, the House of Lords had before it a case in which Mr.Cory, a director of the company, was being made liable for misfeasance on the groun....
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....rectors were : (1) A director is only liable for gross or culpable negligence, this means that he does not owe a duty to his company, to take all possible care. It is some degree of care less than that. The care that he is bound to take has been described by Neville, J. in the case referred to above as "reasonable care" to be measured by the care an ordinary man might be expected to take in the circumstances on his own behalf. (2) A director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. (3) A director is not bound to give continuous attention to the affairs of his company. His duties are of an intermittent nature to be performed at periodical board meetings, and at meetings of any committee of the board upon which he happens to be placed. He is not, however, bound to attend all such meetings, though he ought to attend whenever, in the circumstances, he is reasonably able to do so. (4) In respect of all duties that, having regard to the exigencies of business, and the articles of associati....
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....now look into the legality and validity of the notice issued by the bank so far as the proposed action of declaring the petitioners as willful defaulters is concerned. So far as the petitioners of Special Civil Application No.645 of 2014 are concerned, they were served with a notice dated 19th February 2013, indicating that they had been availing the facilities from the branch office of the bank at Ahmedabad, the details have been stated in the notice. It has been further stated that their accounts were classified as "NPA" on 30th June 2012 with the outstanding balance of Rs. 10,27,23,076=00. They were informed that the bank had already taken the SARFAESI action and filed O.A. No.200 of 2012 for recovery of Rs. 10.80 crore in D.R.T.-I, Ahmedabad. It is further stated that the bank proposed to classify them as a willful defaulters for the reasons stated in the notice, mainly default in meeting its payment/repayment obligation and siphoning of the funds by utilizing the same for other purpose rather than for the purpose for which the loan was obtained. Once again, a second show cause notice dated 14th May 2013 was issued, calling upon the petitioners to show-cause as to why they s....
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....sp; (f) Fraudulent transactions by the borrower. The show cause notice is absolutely silent regarding the same. It could be the case of the bank that there has been a deliberate non-payment of the dues despite adequate cashflow and good net-worth but, before alleging, there has to be some material with the bank and the same should be prima facie disclosed to the borrower so that he could make good his case that there has been no deliberate non-payment of the dues. For example, if it is the case of the bank that there is adequate cash-flow and good net-worth and despite that the borrower has failed in repayment of the loan, then the bank should disclose the source of information regarding the adequate cash-flow and good net-worth. We are not satisfied with the manner in which the bank wants to proceed against the petitioners. The bank can definitely proceed in accordance with the policy decision as reflected from the Master Circular, but the same has to be in accordance with law. We are of the view that since the show cause notice is bereft of basic details and material particulars, the same deserves to be quashed and set-aside. It would be open for the bank to once a....
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....further, the Supreme Court held that it was immaterial whether the corporation was created by a statute or under a state. The test is whether it is an instrumentality or agency of the Government and not as to how it was created. In the said case their Lordships proceeded to observe that the Government may act through the instrumentality or agency of a natural person or it may employ the instrumentality or agency of juridical person to carry out its functions. The test is that it will be considered to be an agency and instrumentality of the State. It is true that the corporation is a distinct juristic entity with a corporate structure of its own and it carries on its functions on business principles with a certain amount of autonomy which is necessary as well as useful from the point of view of effective business management but behind the formal ownership which is cast in the corporate mould, the reality is very much the deeply pervasive presence of the Government, and it is in fact the Government which acts through the instrumentality or agency of the corporation or the juristic person. If the instrumentality and agency of the Govt. discharges the Governmental functions it must be ....
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....ng on the bank. With regard to the fifth test, although it has been very vociferously submitted by Mr.Shelat, the learned appearing on behalf of the petitioners, that the functions of the bank are of public importance and further the bank could be said to be discharging a public function which is akin to a Governmental function, yet this argument pales into insignificance in view of the decision of the Supreme Court in the case of Federal Bank Limited v. Sagar Thomas and others, (2003)10 SCC 733. We shall discuss the decision of the Supreme Court in the case of Federal Bank Limited (supra) a little later. While dealing with the test based on functions of the Corporation of public importance, the Supreme Court in Ramana Dayaram Shetty's case, AIR 1979 SC 1628, referred "to E.S.Evans v. Charles E.Newton, (1966)382 US 296 and Smith v. Allwright, (1943)32 US 649, and observed that the decisions show that the test of public or governmental character of the function is not easy of application and does not invariably lead to the correct inference because the range of governmental activity is broad and varied and merely because an activity may be such as may legitimately be carried ....
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.... binding directions to the parties, disobedience of which would entail penal consequences or it has the sovereign power to make rules and regulations having the force of law". In Sukhdev Singh's case, the principal reason which prevailed with A.N. Ray, CJ for holding ONGC, LIC and IFC as authorities and hence 'the State' was that rules and regulations framed by them have the force of law. In Sukhdev Singh's case, Mathew J. held that the test laid down in RSEB's case was satisfied so far as ONGC is concerned but the same was not satisfied in the case of LIC and IFC and, therefore, he added to the list of tests laid down in RSEB's case, by observing that though there are no statutory provisions, so far as LIC and IFC are concerned, for issuing binding directions to third parties, the disobedience of which would entail penal consequences, yet these corporations (i) set up under statutes, (ii) to carry on business of public importance or which is fundamental to the life of the people ___ can be considered as the State within the meaning of Article 12. Thus, it is the functional test which was devised and utilized by Mathew J. and there he s....
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....o statutory Corporations, whilst retaining Govt. control. Company legislation in India permits tearing of the corporate veil in certain cases and to look behind the real legal personality. But Mathew J. achieved the same result by a different route, namely, by drawing out the implications of Article 13(2)" (Para 7.57 ibid). The terms instrumentality or agency of the State are not to be found mentioned in Article 12 of the Constitution. Nevertheless they fall within the ken of Article 12 of the Constitution for the simple reason that if the State chooses to set up an instrumentality or agency and entrusts it with the same power, function or action which would otherwise have been exercised or undertaken by itself, there is no reason why such instrumentality or agency should not be subject to same constitutional and public law limitations as the State would have been. In different judicial pronouncements, some of which we have reviewed, any company, corporation, society or any other entity having a juridical existence if it has been held to be an instrumentality or agency of the State, it has been so held only on having found to be an alter ego, a double or a pro....
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....ch makes it an authority; though in a given case, depending on the facts and circumstances, an authority may also be found to be an instrumentality or agency of the State and to that extent they may overlap. Tests 1, 2 and 4 in Ajay Hasia enable determination of Governmental ownership or control. Tests 3, 5 and 6 are 'functional' tests. The propounder of the tests himself has used the words suggesting relevancy of those tests for finding out if an entity was instrumentality or agency of the State. Unfortunately thereafter the tests were considered relevant for testing if an authority is the State and this fallacy has occurred because of difference between 'instrumentality and agency' of the State and an 'authority' having been lost sight of sub-silentio, unconsciously and undeliberated. In our opinion, and keeping in view the meaning which 'authority' carries, the question whether an entity is an 'authority' cannot be answered by applying Ajay Hasia tests. (2) The tests laid down in Ajay Hasia's case are relevant for the purpose of determining whether an entity is an instrumentality or agency ....
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....ong factor supportive of this inference of the corporation being an instrumentality or agency of Government." The aforesaid ratio in Ramana Dayaram Shetty (supra) has been consistently followed by the Supreme Court, as is evident from paragraph 31 of the judgment in Biswas (supra). Para 31 reads as under : "31. The tests to determine whether a body falls within the definition of 'State' in Article 12 laid down in Ramana with the Constitution Bench imprimatur in Ajay Hasia form the keystone of the subsequent jurisprudential superstructure judicially crafted on the subject which is apparent from a chronological consideration of the authorities cited." The subsequent paragraphs of the judgment noticed the efforts made to further define the contours within which to determine, whether a particular entity falls within the definition of other authority, as given in Article 12. The ultimate conclusion of the Constitution Bench are recorded in paragraph 39 and 40 as under :- "39. Fresh off the judicial anvil is the decision in Mysore Paper Mills Ltd. v. Mysore Paper Mills Officers' Assn., (2002)2 SCC 167, which fairly represents ....
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....objection to the maintainability of the writ petition was taken by the appellant Bank, saying that it was a private bank and not a State or its agency or instrumentality within the meaning of Article 12 of the Constitution of India. The learned Single Judge of the High Court, however, found that the Federal Bank performed a public duty, and as such, it would get covered under the definition of 'other authority' within the meaning of Article 12, and as such, the writ petition was maintainable. The order passed by the learned Single Judge was carried in appeal and the appeal was also dismissed. The Federal Bank challenged the order passed by the High Court, dismissing the appeal, before the Supreme Court. The question which fell for the consideration before the Supreme Court on appeal was, whether the appellant Bank was a private body or fell within the definition of a State or legal or other authorities under the control of the Government within the meaning of Article 12 of the Constitution of India. The observations of the Supreme Court as contained in paragraphs 26 to 33 are worth noting: "26. A company registered under the Companies Act for the pu....
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....So as to ensure adherence to such fiscal discipline, if need be, at times even the management of the company can be taken over. Nonetheless, as observed earlier, these are all regulatory measures to keep a check and provide guideline and not a participatory dominance or control over the affairs of the company. For other companies in general carrying on other business activities may be manufacturing, other industries or any business, such checks are provided under the provisions of the Companies Act, as indicated earlier. There also, the main consideration is that the company itself may not sink because of its own mismanagement or the interest of the shareholders or people generally may not be jeopardized for that reason. Besides taking care of such interest as indicated above, there is no other interest of the State, to control the affairs and management of the private companies. The care is taken in regard to the industries covered under the Industries (Development and Regulation) Act, 1951 that their production which is important for the economy may not go down yet the business activity is carried on by such companies or corporations which only remains a private activity of the e....
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....ank nor anyone of them is a member of the Board of Directors. In the normal functioning of the private banking company there is no participation or interference of the State or its authorities. The statutes have been framed regulating the financial and commercial activities so that fiscal equilibrium may be kept maintained and not get disturbed by the malfunctioning of such companies or institutions involved in the business of banking. These are regulatory measures for the purposes of maintaining the healthy economic atmosphere in the country. Such regulatory measures are provided for other companies also as well as industries manufacturing goods of importance. Otherwise these are purely private commercial activities. It deserves to be noted that it hardly makes any difference that such supervisory vigilance is kept by the Reserve Bank of India under a Statute or the Central Government. Even if it was with the Central Government in place of the Reserve Bank of India it would not have made any difference, therefore, the argument based on the decision of All India Bank Employees' Association (supra) does not advance the case of the respondent. It is only in case of malfunctioning....
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....ubt held that a Mandamus can be issued to any person or authority performing public duty, owing positive obligation to the affected party. The writ petition was held to be maintainable since the teacher whose services were terminated by the institution was affiliated to the university and was governed by the Ordinances, casting certain obligations which it owed to that petitioner. But it is not the case here. Our attention has been drawn by the learned counsel for the appellant to paragraphs 12, 13 and 21 of the decision (Andi Mukta) to indicate that even according to this case no writ would lie against the private body except where it has some obligation to discharge which is statutory or of public character. 32. 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 or sound economic growth having due regard to the interests of the depositors etc. as provided under Section 5(c)(a) of the Banking Regulation Act does not mean that the private companies carrying on the business of or commercial activity of banking, discharge any public function or public duty. These are all....
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....e is concerned. We may quote one more decision of the Supreme Court, showing considerable law on the issue with which we are dealing with, in the case of Binny Limited and another v. V.Sadasivan and others, (2005)6 SCC 657. "10. The Writ of Mandamus lies to secure the performance of a public or a statutory duty. The prerogative remedy of mandamus has long provided the normal means of enforcing the performance of public duties by public authorities. Originally, the writ of mandamus was merely an administrative order from the sovereign to subordinates. In England, in early times, it was made generally available through the Court of King's Bench, when the Central Government had little administrative machinery of its own. Early decisions show that there was free use of the writ for the enforcement of public duties of all kinds, for instance against inferior tribunals which refused to exercise their jurisdiction or against municipal corporation which did not duly hold elections, meetings, and so forth. In modern times, the mandamus is used to enforce statutory duties of public authorities. The courts always retained the discretion to withhold the remedy wher....
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....ng activities. These have come to be known as Public Sector Undertakings. However, in the interpretation given to Article 12 of the Constitution, this Court took the view that many of these companies and corporations could come within the sweep of Article 12 of the Constitution. At the same time, there are private bodies also which may be discharging public functions. It is difficult to draw a line between the public functions and private functions when it is being discharged by a purely private authority. A body is performing a "public function" when it seeks to achieve some collective benefit for the public or a section of the public and is accepted by the public or that section of the public as having authority to do so. Bodies therefore exercise public functions when they intervene or participate in social or economic affairs in the public interest. In a book on Judicial Review of Administrative Action (Fifth Edn.) by de Smith, Woolf & Jowell in Chapter 3 para 0.24, it is stated thus: "A body is performing a "public function" when it seeks to achieve some collective benefit for the public or a section of the public and is accepted b....
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....ower; that although the panel purported to be part of a system of self- regulation and to derive its powers solely from the consent of those whom its decisions affected, it was in fact operating as an integral part of a governmental framework for the regulation of financial activity in the City of London, was supported by a periphery of statutory powers and penalties, and was under a duty in exercising what amounted to public powers to act judicially; that, therefore, the court had jurisdiction to review the panel's decision to dismiss the applicants' complaint; but that since, on the facts, there were no grounds for interfering with the panel's decision, the court would decline to intervene. 13. Lloyd L.J., agreeing with the opinion expressed by Sir John Donaldson M.R. held : "I do not agree that the source of the power is the sole test whether a body is subject to judicial review, nor do I so read Lord Diplock's speech. Of course the source of the power will often, perhaps usually, be decisive. If the source of power is a statute, or subordinate legislation under a statute, then clearly the body i....
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....onstitutional provisions and judicial guidelines and violation, if any, of the fundamental rights guaranteed in Part III of the Constitution. In the matter of employment of workers by private bodies on the basis of contracts entered into between them, the courts had been reluctant to exercise the powers of judicial review and whenever the powers were exercised as against private employers, it was solely done based on public law element involved therein. 17. This view was expressly stated by this Court in various decisions and one of the earliest decisions is the Praga Tools Corporation v. Shri C.A. Imanual and Others (1969) 1 SCC 585 In this case, the appellant company was a company incorporated under the Indian Companies Act and at the material time the Union Government and the Government of Andhra Pradesh held 56 per cent and 32 per cent of its shares respectively. Respondent workmen filed a writ petition under Article 226 in the High Court of Andhra Pradesh challenging the validity of an agreement entered into between the employees and the company, seeking a writ of mandamus or an order or direction restraining the appellant from implementing the said agree....
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....nted and that the High Court committed an error in granting such a declaration. 19. In VST Industries Limited vs. VST Industries Workers' Union & Anr. (2001) 1 SCC 298, the very same question came up for consideration. The appellant-company was engaged in the manufacture and sale of cigarettes. A petition was filed by the first respondent under Article 226 of the Constitution seeking a writ of mandamus to treat the members of the respondent Union, who were employees working in the canteen of the appellant's factory, as employees of the appellant and for grant of monetary and other consequential benefits. Speaking for the Bench, Rajendra Babu, J., (as he then was), held as follows : "7. In de Smith, Woolf and Jowell's Judicial Review of Administrative Action, 5th Edn., it is noticed that not all the activities of the private bodies are subject to private law, e.g., the activities by private bodies may be governed by the standards of public when its decisions are subject to duties conferred by statute or when by virtue of the function it is performing or possible its dominant position in the market, it is....
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....tly held that it had no jurisdiction. 21. Another decision on the same subject is General Manager, Kisan Sahkar Chini Mills Limited, Sultanpur, UP vs. Satrughan Nishad and Ors. (2003) 8 SCC 639. The appellant was a cooperative society and was engaged in the manufacture of sugar. The respondents were the workers of the appellant and they filed various writ petitions contending that they had to be treated as permanent workmen. The appellant challenged the maintainability of those writ petitions and applying the principles enunciated in VST Industries' case (supra), it was held by this Court that the High Court had no jurisdiction to entertain an application under Article 226 of the Constitution as the mill was engaged in the manufacture and sale of sugar which would not involve any public function. 22. In Federal Bank Limited vs. Sagar Thomas & Ors. (2003) 10 SCC 733, the respondent was working as a Branch Manager of the appellant Bank. He was suspended and there was a disciplinary enquiry wherein he was found guilty and dismissed from service. The respondent challenged his dismissal by filing a writ petition. The learned Single Judge h....
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....not an "authority" coming within the purview of Article 12 of the Constitution and therefore the writ petition was not maintainable. This plea was rejected and this Court held that the writ of mandamus would lie against a private individual and the words "any person or authority" used in Article 226 are not to be confined only to statutory authorities and instrumentalities of the State and they may cover any other person or body performing public duty. The form of the body concerned is not very much relevant. What is relevant is the nature of the duty imposed on the body. The duty must be judged in the light of positive obligation owed by the person or authority to the affected party. No matter by what means the duty is imposed, if a positive obligation exists, mandamus cannot be denied. 29. Thus, it can be seen that a writ of mandamus or the remedy under Article 226 is pre-eminently a public law remedy and is not generally available as a remedy against private wrongs. It is used for enforcement of various rights of the public or to compel the public/statutory authorities to discharge their duties and to act within their bounds. It may be used to do justice wh....
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....eir employees cannot be said to have any element of public policy. Their cases were purely governed by the contract of employment entered into between the employees and the employer. It is not appropriate to construe those contracts as opposed to the principles of public policy and thus void and illegal under Section 23 of the Contract Act. In contractual matters even in respect of public bodies, the principles of judicial review have got limited application. This was expressly stated by this Court in State of U.P. vs. Bridge & Roof Co. (1996) 6 SCC 22 and also in Kerala State Electricity Board vs. Kurien E.Kalathil (2000) 6 SCC 295. In the latter case, this Court reiterated that the interpretation and implementation of a clause in a contract cannot be the subject matter of a writ petition. Whether the contract envisages actual payment or not is a question of construction of contract. If a term of a contract is violated, ordinarily, the remedy is not a writ petition under Article 226. 32. Applying these principles, it can very well be said that a writ of mandamus can be issued against a private body which is not a State within the meaning of Article 12 of the ....
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....tion which is required or enabled to be performed wholly or partially at public expense, irrespective of : "2. (a) the legal status of the person who performs the function, or (b) whether the person performs the function by reason of a contractual or other agreement or arrangement." 51. This Court also quoted with approval the Commentary on Judicial Review of Administrative Action (Fifth Edn.) by de Smith, Woolf & Jowell in Chapter 3 para 0.24 therein it has been stated as follows : "A body is performing a 'public function' when it seeks to achieve some collective benefit for the public or a section of the public and is accepted by the public or that section of the public as having authority to do so. Bodies therefore exercise public functions when they intervene or participate in social or economic affairs in the public interest. Public functions need not be the exclusive domain of the state. Charities, self-regulatory organizations and other nominally private institutio....
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....the college and surrendered the affiliation of the college to the University. Teachers moved the High Court. The trustees resisted the prayer on the grounds, inter alia: (1) the Trust is not a statutory body and is not subject to the writ jurisdiction of the High Court; (2) the resolution of the University directing payment to teachers in the revised pay scales was not binding on the trust; (3) the University had no power to burden the trust with additional financial liability by retrospectively revising the pay scales; (4) the claim for gratuity by retrenched teachers was untenable; and (5) Ordinance 120E prescribing closure compensation was ultra vires of the powers of the Syndicate. 175. The High Court rejected the above submissions and accepted the writ petitions. The trustees moved the Supreme Court. The Supreme Court has in the said judgment considered the question of maintainability of the writ petition under Article 226 of the Constitution in these words (AIR 1989 SC 1607 at pp.1610-1613) : "The essence of the attack on the maintainability of the writ petition under Art. 226 may now be examined. ....
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....payable to them. The question is whether the trust can be compelled to pay by a writ of Mandamus? If the rights are purely of a private character no mandamus can issue. If the management of the college is purely a private body with no public duty mandamus will not lie. These are two exceptions to Mandamus. But once these are absent and when the party has no other equally convenient remedy, mandamus cannot be denied. It has to be appreciated that the appellant-trust was managing the affiliated college to which public money is paid as Government aid. Public money paid as Government aid plays a major role in the control, maintenance and working of educational institutions. The aided institutions like Government institutions discharge public function by way of imparting education to students. They are subject to the rules and regulations of the affiliating University. Their activities are closely supervised by the University authorities. Employment in such institutions, therefore, is not devoid of any public character (See The "Evolving Indian Administrative Law by M.P. Jain (1983) p 266). So are the service conditions of the academic staff. When the University ta....
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....best. That they have done and are doing." (see - The Closing Chapter by Rt. Hon. Lord Denning p. 122) There, however, the prerogative writ of mandamus confined only to public authorities to compel performance of public duty. The 'public authority' for them means everybody which is created by statute - and whose powers and duties are defined by statute. So Government departments, local authorities, police authorities, and statutory undertakings and corporations, are all 'public authorities'. But there is no such limitation for our High Courts to issue the writ 'in the nature of mandamus'. Article 226 confers wide powers on the High Courts to issue writs in the nature of prerogative writs. This is a striking departure from the English law. Under Article 226, writs can be issued to 'any person or authority'. It can be issued 'for the enforcement of any of the fundamental rights and for any other purpose." Article 226 reads: "226. Power of High Courts to issue certain writs.--  ....
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....d in Art. 226 are, therefore, not to be confined only to statutory authorities and instrumentalities of the State. They may cover any other person or body performing public duty. The form of the body concerned is not very much relevant. What is relevant is the nature of the duty imposed on the body. The duty must be judged in the light of positive obligation owed by the person or authority to the affected_ party. No matter by what means the duty is imposed. If a positive obligation exists mandamus cannot be denied. In Praga Tools Corporation v. C.V. Imanual, , this Court said that a mandamus can issue against a person or body to carry but the duties placed on them by the Statutes even though they are not public officials or statutory body. It was observed (at p. 778 of 1969-3 SCR): (at pp 1309-10 of AIR): "It is, however, not necessary that the person or the authority on whom the statutory duty is imposed need be a public officials or an official body. A mandamus can issue, for instance, to an official of a society to compel him to carry out the terms of the statute under or by which the society is constituted or g....
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....mandamus is that there is one claiming it a legal right to the performance of a legal duty by one against whom it is sought. An order of mandamus, is, in form, a command directed to a person, corporation or inferior Tribunal requiring him or them to do a particular thing therein specified which appertains to his or their office and is in the nature of a public duty. It is, however, not necessary that the person on the authority on whom the statutory duty is imposed need be a public official or an official body. It is therefore, clear that a writ of mandamus is an extraordinary remedy. It is in form a command directed to a person, corporation or an inferior Tribunal requiring him or them to do a particular thing therein specified which appertains to his or their office and is in the nature of a public duty. So long as the duty that is sought to be performed is in the nature of a public duty, it is not necessary that the person or the authority on which the duty is imposed should be a public official or an official body. It is further necessary that the person claiming a 'writ of mandamus must have a legal right to the performance of a legal duty by the one ....
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....in connection with the public duty imposed on such body, the public law remedy can be enforced. The duty cast on the public body may be either statutory or otherwise and the source of such power is immaterial but, nevertheless, there must be the public law element in such action. (8) According to Halsbury's Laws of England, 3rd Ed. Vol.30, p.682, "a public authority is a body not necessarily a county council, municipal corporation or other local authority which has public statutory duties to perform and which perform the duties and carries out its transactions for the benefit of the public and not for private profit". There cannot be any general definition of public authority or public action. The facts of each case decide the point. We are again posing a question for our consideration. The answer to the same should put an end to the matter. The Master Circular relating to the willful defaulters has been issued by the Reserve Bank of India in exercise of its powers under the Banking Regulation Act, 1949, and the Reserve Bank of India Act, 1934, very much binding to the Standard Chartered Bank, therefore, while acting under the Master Circular for the....
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....ded as we are by our Constitution and uninhibited as we are by the technical rules which have hampered the development of the English law. While we do not for a moment doubt that every action of the State or an instrumentality of the State must be informed by reason and that, in appropriate cases actions uninformed by reason may be questioned as arbitrary in proceedings under Art.226 or Art.32 of the Constitution, we do not construe Art.14 as a charter for judicial review of State actions and to call upon the State to account for its actions in its manifold activities by stating reason; for such actions. For example, if the action of the State is political or sovereign in character, the Court will keep away from it 'the Court will not debate academic matters or concern itself with the intricacies of trade and commerce. If the action of the State is related to contractual obligation or obligations arising out of the contract, the Court may not ordinarily examine it unless the action has some public law character attached to it. Broadly speaking, the Court will examine actions of State if they pertain to the public law domain and refrain from examining them ....
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....e making of decisions of a public nature....To which I would add the words of Lord Goddard, C.J. in R. v. National Joint Council for Dental Technicians, ex parte Neate (1953) 1 QB 704/707): "The bodies to which in modern times the remedies of these prerogative writs have been applied have all been statutory bodies on whom Parliament has conferred statutory powers and duties which, when exercised, may lead to the detriment of subjects who may have to submit to their jurisdiction". But those categories are not exhaustive. The courts can extend them to any other person or body of a public nature exercising public duties which it is desirable to control by the remedy of judicial review. There are many cases which give guidance, but I will just give some illustrations. Every body which is created by statute and whose powers and duties are defined by statute is a 'public authority'. So Government departments, local authorities, police authorities, and statutory undertakings and corporations, are all 'public authorities'. So are members of a statutory tribunal or inquiry, and the board ....
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....ship is circumscribed by a statutory provision. 39. In this context, it would be appropriate to refer to two important English decisions, where a public duty was implied even in the absence of a statutory provisions. They are R. v. Criminal Injuries Compensation Board, ex parte Lain (1967) 2 All ER 770, and R. v. Panel on takeovers (1987) 1 All ER 564. In Criminal Injuries Compensation Board, the relevant facts are the following: In the year 1964 the Government of Great Britian announced a Scheme in both Houses of Parliament providing for compensation to victims of violence and persons injured while assisting the police. It was a non-statutory scheme under which compensation was to be paid ex gratia. The scheme was to be administered by a Board, who were to be provided with money through a grant-in-aid, out of which payment would be made when the Board was satisfied that the compensation was justified. The widow of a Police Constable who was shot in the face by a suspect whom he was about to question, and who subsequently shot himself, applied to the Board for compensation. The Board awarded compensation, but made certain deductions, which was questioned by wa....
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....nbsp; "If new tribunals are established by acts of Government, the supervisory jurisdiction of the High Court extends to them if they possess the essential characteristics on which the subjection of inferior tribunals to the supervisory control of the High Court is based...". Ashworth, J., justified the issue of certiorari in that case on the following basis: "They (Board) were set up by the executive after the proposal to set them up had been debated in both Houses of Parliament, and the money needed to satisfy their awards is drawn from sums provided by Parliament. It can therefore be said that their existence and their functions have at least been recognized by Parliament, which to my mind has a twofold consequence : in the first place it negatives any notion that the Board are a private tribunal, and secondly it confers on the Board what I may call a public or official character. The number of applications for compensation and the amounts awarded by the Board alike show how greatly the general public are affected by the functioning of the Board ....". 40. This decision has since been followed and applied in sev....
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....lic duty and an important one. This is clear from the expressed willingness of the Secretary of State for Trade and Industry to limit legislation in the field of take-overs and mergers and to use the panel as the centerpiece of his regulation of that market. The rights of citizens are indirectly affected by its decisions, some, but by no means all of whom, may in a technical sense be said to have assented to this situation, e.g., the members of the Stock Exchange. At least in its determination of whether there has been a breach of the Code, it has a duty to act judicially and it asserts that its raison d'etre is to do equity between one shareholder and another. Its source of power is only partly based on moral persuarion and the assent of institutions and their members, the bottom line being the statutory powers exercised by the Department of Trade and Industries and the Bank of England. In this context I should be very disappointed if the courts could not recognize the realities of executive power and allowed their vision to be clouded by the subtlety and sometimes complexity of the way in which it can be exerted...". This rule was reiterated in yet anoth....
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....hood" depended upon various other factors also, such as the nexus of such organizations with the State, the extent of State control etc. The following observations of the Full Bench are worth taking note of:- "There may be many functions of public importance which can be performed by private organisation also. We have a large number of organisations doing important social work vital to the community. There are, for example, organisations which look after, educate and train handicapped persons or the blind, provide them with jobs and rehabilitate them. There are private charitable organisations which may provide free or subsidies housing to the poor or free medical aid. They may supply textbooks to poor students, freeships and scholarships. There may be private organisation engaged in transport of goods and men. They perform functions which are, undoubtedly of public importance; and they subserve a public need. But this does not necessarily make such organisations "State" under Art. 12.Banking is undoubtedly a function of public importance. In fact, the nationalised banks do carry out these functions under the control of the State. But that does not mean that b....
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....dents approached the District Court under Section 34 of the Arbitration and Conciliation Act, 1996, for setting aside the award. However, the court dismissed the petition. The High Court set-aside the award on certain grounds. In such circumstances, the contractor filed appeal before the Supreme Court. In the aforesaid factual background, the Supreme Court had the occasion to consider the question, whether one party has committed breach or not, cannot be decided by the party alleging breach. A contract cannot provide that one party will be the arbiter to decide, whether he committed breach or the other party committed breach. Such question can only be decided by only the adjudicatory forum, i.e. a court or an Arbitral Tribunal. This decision of the Supreme Court has been relied upon to fortify the submission canvassed on behalf of the petitioners that the bank who alleges that a particular borrower has committed a willful default and deserves to be declared as a willful defaulter, such adjudication cannot be at the instance of the bank being the complainant itself. In our opinion, the aforenoted decision of the Supreme Court has no application to the case at hand for more than one ....
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....constitutional. It is in the aforesaid background that the Supreme Court took the view that in order to judge, whether the provisions in the Act operated by way of unreasonable restrictions for the constitutional purposes, what was necessary to be seen was whether the person affected got a reasonable chance of presenting his entire case before the original Tribunal which had to determine judicially, the question raised and whether he had a regular appeal to the ordinarily constituted court or courts to correct the error, if any, of the Tribunal of the first instance. Relying on such observations of the Supreme Court, it was sought to be contended that in the present case also the Master Circular relating to willful defaulters is by way of unreasonable restrictions as the bank itself would adjudicate the issue against which there is no provision for an appeal before any authority. In our opinion, this decision also is of no assistance to the petitioners as the facts of the case were altogether different. The Supreme Court noticed few salient features of the provisions of the Act and the scheme. The Supreme Court noticed that in the initial stage of the framing of the scheme under th....
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....t. The position would be different only if there was no dispute or there was a consensus between the contracting parties regarding the breach of conditions. Here again, the case is one of contract entered into between the two parties relating to purchase of paddy under the Paddy Procurement Scheme, 1959. Disputes arose between the parties to the contract and, in such circumstances, the observations noted above fell from the Supreme Court. This decision also, in our opinion, is of no assistance to the petitioners. In the case of Indian Banks Association (supra), the issue before the Supreme Court was regarding the authority of the bankers to round up the then existing interest rate to 0.25%. The facts before the Supreme Court in brief were that the Interest Act was enacted by the Parliament w.e.f. 1st August, 1974 with an object of imposing of tax on the total amount of interest received by the Scheduled Bank/Credit Institutions on loans and advances. It was, however, withdrawn in the year 1978, but reintroduced in the year 1980; where after, it was again withdrawn in the year 1985. The said tax, however, was reintroduced w.e.f. 1st October, 1991, by reason of the Finance Act, 19....
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....ed direction in the form of a Master Circular relating to "willful default" and "willful defaulters". According to the petitioners, such policy decision of the Reserve Bank of India is beyond the scope of its powers under the Banking Regulations Act and the Reserve Bank of India Act. We are afraid, we are unable to understand how this decision of the Supreme Court is helpful to the petitioners. The Supreme Court took the view that the Reserve Bank of India should not have undertaken any exercise under the Interest Act, 1974. The functions of the Reserve Bank of India are confined only to the provisions of the Reserve Bank of India Act and the Banking Regulations Act and not any other statute. We have already explained in detail that the Master Circular is in exercise of the powers under the Reserve Bank of India Act and the Banking Regulation Act and not any other statute with which the Reserve Bank of India is in no way concerned. Thus, this decision is also, in no manner, helpful to the petitioners. In the case of Directorate of Revenue (supra), the Supreme Court was dealing with a matter relating to the Narcotic Drugs & Psychotropic Substances Act, 1985. The Supreme Court, in....
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....cludes the right to be heard, the right to produce witnesses and so for. His Lordships observed that such was the protection which the law guaranteed equally to all persons, and the Constitution prohibited by Article 14 every State from denying such protection to anyone. Taking clue from such observations made by the Supreme Court, it is sought to be contended in the present case that having regard to the nature of the inquiry, more particularly the mode and the manner, it could not be said that the interest of the borrower is well protected. We are afraid, this decision is also of no assistance to the petitioners. The observations of the Supreme Court referred to above were altogether on a different factual context. In M/s.A-One Mega Mart P. Limited (supra), a Division Bench of the Punjab and Haryana High Court was considering the challenge to the orders passed by the HDFC Bank rejecting the request of the petitioner for selling the mortgaged property under Section 13(13) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. A preliminary objection was raised on behalf of the respondents as regards the maintainability of th....
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....d. In Apex Electricals Limited (supra), a learned Single Judge of this Court had the occasion to consider an identical issue as regards the maintainability of a writ application against a private bank. In the said case, it was the ICICI Bank Limited against whom writ was prayed for by the petitioners. It was in context with the provisions of the SARFAESI Act that the learned Single Judge took the view that a writ petition was maintainable against a private bank like ICICI Bank to challenge any illegal action of the bank while taking steps under Section 13(4) of the SARFAESI Act. This decision also, in our opinion, is of no assistance to the petitioners. The Supreme Court, in the case of Government of Karnataka v. Gowramma, reported in AIR 2008 SC 863, has pointed out [in paragraph 10] that Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. Observations of Courts are neither to be read as Euclids theorems nor as provisions of the statute and that too taken out of their context. The following observations in paragraphs 12 and 13 of the said judgment are rel....
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....could be termed as a statutory circular. (5) The application of the maxim "nemo judex in causa sua" on the part of the petitioners on the premise that the bank itself will be a judge in its own cause is completely misplaced. In a given case, if the court finds the action to be tainted with malafide or bias, then the same could always be condemned and set at right. On mere apprehension of misuse of such provision, an otherwise valid statute, should not be struck down or condemned. A mere possibility or likelihood of abuse of power does not make the provision ultra vires or bad in law. (6) The Master Circular does not impose an unreasonable restriction upon the promoters/entrepreneurs, being violative of the Article 19(1)(g) of the Constitution of India as it has the effect of debarring them from availing of any additional facilities for floating a new venture for a period of five years from the date the name of the willful defaulter is published in the list of "willful defaulters" by the Reserve Bank of India. (7) The Master Circular, so far as it....