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2014 (12) TMI 1251
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....e Reserve Bank of India is not a piece of subordinate legislation and, therefore, it is not binding on a bank carrying on banking business in India. He submits that, the Master Circular does not have statutory force. Without prejudice to his first contention, he submits that, the Master Circular requires two committees to be formed by a bank. In the instant case, according to him, the compositions of the two committees were not in accordance with the Master Circular. He contends that, the procedure established by the Master Circular was not followed by United Bank of India. He refers to the first committee under the Master Circular as the Identification Committee. He submits that, the Identification Committee did not consider any document required of it to consider under the Master Circular when it recommended that the writ petitioners should be declared as a wilful defaulter. He submits that, Kingfisher Airlines Limited (KAL) was enjoying credit facilities from a consortium of bankers. United Bank of India is a member of such consortium. State Bank of India is the lead banker of the consortium. KAL faced financial difficulties at a given point of time. Such financial difficu....
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.... declare the writ petitioners as wilful defaulters under the Master Circular of the Reserve Bank of India. Referring to the reply dated July 4, 2014 of KAL, he submits that, KAL elaborately dealt with the allegations leveled against KAL in the letter dated June 23, 2014 of the bank. He refers to the three minutes of the consortium meeting held on November 12, 2011, December 2, 2011 and January 9, 2012 and submits that, the bank was present in such consortium meeting and that the minutes of such meeting will demonstrate that, the writ petitioners cannot be classified as wilful defaulters under the Master Circular of the Reserve Bank of India. He points out that, the State Bank of India as the lead bank was operating the Trust Retention Account. KAL had no control over such account. It had every intention to repay the sum of Rs. 7.5 crores taken as loan from the bank. It was the State Bank of India who did not make over the funds to the bank from out of the Trust Retention Account. The writ petitioners cannot be foisted with the default of State Bank of India in not paying the sum of Rs. 7.5 crores to the United Bank of India. He contends that, there were sufficient funds in th....
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.... decision making process laid down under the guidelines of the Master Circular of the Reserve Bank of India is vitiated by biasness. He submits that, all that the writ petitioners are required to establish is that there is a reasonable apprehension of biasness. In support of such contention, he relies upon 1986 Volume 1 Supreme Court Cases page 264 (Life Insurance Corporation of India v. Escorts Ltd. & Ors.), 1985 Volume 3 Supreme Court Cases page 398 (Union of India v. Tulsiram Patel) and 1987 Volume 4 Supreme Court Case page 611 (Ranjit Thakur v. Union of India & Ors.). Mr. Pal contends that, the Master Circular of the Reserve Bank of India should be declared to be violative of Article 14 of the Constitution of India. He contends that, the fundamental right to carry on business under Article 19 of the Constitution of India is sought to be abridged unreasonably by the Master Circular. Article 21 of the Constitution of India recognizes the right to reputation of a citizen of India. The Master Circular if allowed to stand, will infringe upon such right of a citizen of India. Mr. Pal refers to the subject matter of the first writ petition and submits that, the only issue raised in....
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....the Grievance Redressal Committee refused such prayer of accommodation on a misappreciation of a material fact. The Grievance Redressal Committee proceeded on the basis that the writ petitioners were contemplating filing a Special Leave Petition while in effect by the letters dated August 29, 2014 and August 30, 2014 to the bank the Advocate for the writ petitioners amply specified that a Special Leave Petition against the judgment of the Division Bench and an interim application in connection therewith had already been filed. He relies Upon 2004 Volume 2 Supreme Court Cases page 65 (Bahadursinh Lakhubhai Gohil v. Jagdishbhai M. Kamalia & Ors.), 1981 Volume 4 Supreme Court Cases page 716 (Dr. S.P. Kapoor v. State of Himachal Pradesh & Ors.) and 2006 Volume 11 Supreme Court Cases page 56 (Inderpreet Singh Kahlon & Ors. v. State of Punjab & Ors.) in this regard. He also refers to 1923 All England Law Reports Reprint page 253 (R. v. Sussex Justices), 1969 Volume 2 Supreme Court Cases page 262 (A.K. Kraipak & Ors. v. Union of India & Ors.), 1984 Volume 4 Supreme Court Cases page 103 (J. Mohapatra and Co. & Anr. v. State of Orissa & Anr.), 1991 Volume 1 Supreme Court Cases page 494 (Isa....
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.... be unwieldy and that the member appointed in the two committees should be qualified to be appointed in the two committees in accordance with the qualification prescribed by the Master Circular. Mr. Mitra contends that, in the facts of this case, the provisions of Regulations 3(i) and (ii) has been complied with. In any event, the writ petitioners cannot be allowed to urge the point of non-compliance of Regulations 3(i) and (ii) in view of such challenge being given up in the first writ petition. Although such points were available to the writ petitioners, the writ petitioners in the first round of writ petitioner limited there challenge to the right of representation by lawyers before the Grievance Redressal Committee only. Mr. Mitra contends that, the number of personnel specified in the Master Circular is not mandatory. The Court should not read words into the Master Circular which are absent. The Master Circular does not use the word "only" while specifying the numbers. There is no negative clause in the Master Circular stating that any breach of such compliance will visit the bank with any penalty. These aspects indicate that the members prescribed are not mandatory. Mr.....
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....v. Managing Committee, Dr. Hari Ram (Co-Education) Higher Secondary School & Ors.) in this regard. He contends that a direction issued by the Reserve Bank of India under Section 21A and Section 35A of the Banking Regulation Act, 1949 is binding on a banker continuing in banking in India. He relies upon 2002 Volume 1 Supreme Court Cases page 367 (Central Bank of India v. Ravindra & Ors.), 2009 Volume 8 Supreme Court Cases page 257 (Sardar Associates & Ors. v. Punjab & Sind Bank & Anr.) and 2010 Volume 10 Supreme Court Cases page 640 (Punjab & Sind Bank v. Allied Beverage Co. Pvt. Ltd. & Ors.) in this regard. On the point that, the Master Circular and the numerical strength of the two committees prescribed by the Master Circular are directory and not mandatory, Mr. Mitra relies on All India Reporter 1977 Supreme Court page 536 (Mannalal Khetan v. Kedar Nath Khetan & Ors.) and All India Reporter 1965 Supreme Court page 895 (Raza Buland Sugar Co. Ltd. Rampur v. The Municipal Board, Rampur). Mr. Mitra relies on the "Principles of Statutory Interpretation" 15th Edition by Justice G.P. Singh page 389 to 405 on the issue that when a statutory provision can be said to be mandatory and when ....
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....ancial institutions carrying on banking business in India? (ii) Are the numbers of "higher functionaries" constituting the Identification Committee and the Grievance Redressal Committee prescribed in Regulations 3(i) and 3(iii) mandatory? (iii) Could the Bank of India initiate proceedings for declaring the petitioners as wilful defaulters in view of the letter dated January 31, 2012 of the State Bank of India? There are five writ petitioners before me. KAL is the first writ petitioner. When the writ petition was moved, on the prayer of the writ petitioners, the first respondent being the Union of India was deleted as a party respondent as it had an office outside the territorial jurisdiction of the Original Side of this Court by the Order dated September 26, 2014, so as to comply with Rule 4 of the Writ Rules of this Hon'ble Court. KAL had an airlines business. KAL claims that it was one of the largest domestic airlines in terms of market share at a given point of time. KAL enjoyed credit facilities from diverse banks and financial institutions under a consortium agreement. The respondent no. 2, United Bank of India was one of the members of such consortium. State ba....
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....d of January 2012. By a letter dated February 2, 2012, United Bank of India called upon KAL to make the promised payment. This was followed up by a letter dated October 10, 2012 to State Bank of India for payment. A further request was made on April 2, 2013. State Bank of India by its letter dated April 8, 2013 informed United Bank of India that, the commitment of payment made by KAL to United Bank of India was that of KAL and that, the State Bank of India was not in a position to make the payment. The net result was that, United Bank of India did not receive payment for the temporary overdraft of Rs. 7.5 crores from KAL. United Bank of India initiated proceedings to identify KAL and the other writ petitioners before me as wilful defaulters by a letter dated May 28, 2012. United Bank of India followed this up by another letter dated June 23, 2014. In its letter dated June 23, 2014, United Bank of India charged KAL with opening an account with HDFC bank, a non-consortium bank, for cash management of KAL without the consent of the consortium banks. The second charge was failure of KAL to repay United Bank of India the sum of Rs. 7.5 crores in spite of KAL having the capacity to pa....
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....at, out of the five writ petitioners, the third writ petitioner has a residence in Kolkata. No ground has been disclosed as to why the third writ petitioner could not make himself available for the hearing by the Grievance Redressal Committee if the writ petitioners were serious in pursuing their right of hearing before the Grievance Redressal Committee. This conduct of the writ petitioners cast serious doubts as to the genuinity of the prayer for adjournment of hearing made to United Bank of India and to the Grievance Redressal Committee. The Grievance Redressal Committee of United Bank of India upon consideration of relevant materials, came to the finding that the writ petitioners before me should be declared as wilful defaulters and did so by the order impugned dated September 1, 2014. The order was communicated to the writ petitioners simultaneously. The Special Leave Petition of KAL was dismissed by the Hon'ble Supreme Court of India by an Order dated September 2, 2014 as in the opinion of the Hon'ble Supreme Court of India the petition had become infructuous in view of the decision rendered by the Grievance Redressal Committee in the meantime. On the first two issues Mr....
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....e interest of banking policy or the interests of depositors (and so on) to issue directions generally or in particular which shall be binding. With effect from 15.2.1984 Section 21A has been inserted in the Act which takes away power of the Court to reopen the transaction between a banking company and its debtor on the ground that the rate of interest charged is excessive. The provision has been given an overriding effect over the Usury Loans Act, 1918 and any other provincial law in force relation to indebtedness." In paragraph 55(7) of the report it is held as follows:- "Any interest charged and/or capitalized in violation of RBI directives, as to rate of interest, or as to periods at which rests can be arrived at, shall be disallowed and/or excluded from capital sum and be treated only as interest and dealt with accordingly." In Allied Beverage Co. Pvt. Ltd. (supra) the Supreme Court notes the principles formulated by the Constitution Bench in Ravindra & Ors. (supra). In Sardar Associates & Ors. (supra) it is held by the Supreme Court that a bank was bound to follow the guidelines issued by Reserve Bank of India. It notes the dicta laid down by the Constitution Bench in....
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....Bank has relied upon M/s. Delhi Airtech Services Pvt. Ltd. & Anr. (supra). In particular he has placed paragraphs 97 onwards of the judgment with regard to the principles for interpretation of a statute. Mr. Mitra has referred to the recovery policy of the United Bank of India and the Board Resolution of the United Bank of India in support of his contention that, the numbers prescribed are not mandatory. The recovery policy of United Bank of India refers to the Master Circular and claims that, the recovery policy to be in terms of the Master Circular. The extract of the Board Resolution placed records appointment of four personnel in the Identification Committee. The interpretation of United Bank of India and its understanding of the Master Circular that the number of personnel prescribed is directory and not mandatory, I am afraid, will not assist a Court to arrive at a conclusion that the numbers prescribed in the Master Circular are directory and not mandatory. Mr. Mitra submits that a bank and financial institution has the liberty to play at the joints in deciding the members prescribed. I would agree with Mr. Mitra to the limited extent on this score. The Reserve Bank of....
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....s therefor. The concerned borrower should be provided reasonable time (say 15 days) for making representation against such decision, if he so desires, to a Grievance Redressal Committee headed by the Chairman and Managing Director and consisting of two other senior officials. (iv) Further, the above Grievance Redressal Committee should also give a hearing to the borrower if he represents that he has been wrongly classified as wilful defaulter. (v) A final declaration as 'wilful defaulter' should be made after a view is taken by the committee on the representation and the borrower should suitably advised." Regulation 3 requires a bank to set up a two tier mechanism to identify a wilful defaulter. The first tier is the Identification Committee who will identify a wilful defaulter on the basis of cogent evidence. Its finding is required to be reasoned and well documented. This finding of the Identification Committee is then required to be considered by the second tier, namely, the Grievance Redressal Committee after affording the borrower proposed to be declared as a wilful defaulter a reasonable opportunity of hearing by the Grievance Redressal Committee. The bank is also re....
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....representation is directory and not mandatory. In the facts of this case, in the earlier writ petition, the Court allowed 72 hours to the borrower to make a representation to the Grievance Redressal Committee. The words used in Regulation 3(iii) however, do not suggest that, the number of personnel prescribed by such Regulation to constitute the Grievance Redressal Committee is directory. The submission of Mr. Mitra that the numbers prescribed for the two committees are directory, can be considered in another perspective. Assuming, it is held that, such prescribed number is directory, then, no upper limit is fixed by the Regulation. The regulation does not provide a band width of the numbers that can constitute the two committees. In absence of any guideline to such effect being issued by the Reserve Bank of India, it would be improper to read the Master Circular to say that, on this aspect the Master Circular is directory. If such an interpretation is allowed, then a bank and a financial institution will have unbridled and unguided power in its hand to constitute the Identification Committee and the Grievance Redressal Committee with such numbers as they may choose. Across the ....
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....o suggest the same. The wordings in the two clauses referred to do not permit one to arrive at a conclusion that the number of persons constituting the two committees can be increased at the discretion of the bank. In view of such circumstances, it would be prudent to accept the contention of Mr. Mitra that the numbers prescribed by the Master Circular for composing the two committees are directory and not mandatory. In view of the authoritative pronouncement of Ravindra & Ors. (supra) the second issue is answered by holding that the number prescribed for constituting the Identification Committee and the Grievance Redressal Committee in Regulations 3(i) and 3(iii) of the Master Circular dated July 1, 2014 is mandatory. United Bank of India disclosed the minutes of the Identification Committee in its supplementary affidavit. The Identification Committee held a meeting on May 22, 2014 to identify constituents as wilful defaulters. It was constituted by four members with one Executive Chairman, a Chief General Manager and two General Managers being present. This is in excess of the number of three personnel prescribed in Regulation 3(i) of the Master Circular on wilful defaul....
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....he Master Circular on Wilful Defaulters of the Reserve Bank of India requires every bank to undertake the exercise of identifying and declaring a borrower as a wilful defaulter if he is so. This exercise should be undertaken independent of the view expressed by a member bank of the consortium or any other bank. This is so as the account of the borrower has to be adjudged under the Master Circular in relation to the transactions that the borrower had with the concerned bank. Once a borrower is declared to be a wilful defaulter by a bank, the rigours under the Master Circular would kick in. Non-declaration of wilful defaulter even after an enquiry to such effect under the Master Circular being undertaken by a bank will not bind any other bank with such view as a borrower has to be adjudged as a wilful defaulter in relation to the transactions that the borrower had with the considering bank. Viewed in such context the letter of State Bank of India is of little consequence. In fact, State Bank of India is required to undertake the exercise under the Master Circular also notwithstanding its letter. The letter is not by the Grievance Redressal Committee of State Bank of India. The Mas....