Supreme Court of India
M/S. SARDAR ASSOCIATES & ORS.versusPUNJAB & SINDH BANK & ORS.
- Citation
- 2009 INSC 989
- Decided
- 31 July 2009
- Disposal
- Appeal(s) allowed
- Bench
- S B SINHA
Holding
RBI guidelines issued under s.21 of the Banking Regulation Act are binding on public sector banks, and the Appellate Tribunal was correctly empowered to direct the bank to settle the debt under the one‑time settlement scheme, rendering the High Court’s setting‑aside order unsustainable.
Summary
The appellants, borrowers of a public sector bank, sought a one‑time settlement of their non‑performing loan under RBI guidelines, offering to pay Rs 345.31 lacs, but the bank demanded a higher amount and refused. The Debt Recovery Appellate Tribunal directed the bank to settle as per the RBI scheme, a decision later set aside by the High Court. On appeal, the Supreme Court examined whether RBI circulars issued under s.21 of the Banking Regulation Act, 1949 are binding on public sector banks and whether the tribunal could entertain the settlement proposal. It held that the RBI’s guidelines are statutory directions that banks must follow, that the tribunal was within its jurisdiction to consider the one‑time settlement, and that the bank’s deviation violated the non‑discriminatory clause and Article 14. Consequently, the High Court’s order was set aside and the appellate tribunal’s direction restored.
Issues considered
- Whether RBI guidelines for one‑time settlement of NPAs issued under s.21 of the Banking Regulation Act, 1949 are binding on public sector banks.
- Whether the Debt Recovery Appellate Tribunal could consider a one‑time settlement proposal despite the absence of a specific prayer in the appeal.
- Whether the bank’s deviation from RBI guidelines amounts to a violation of the equality clause (Article 14) and the non‑discriminatory requirement of the guidelines.
- Whether the High Court was justified in setting aside the Appellate Tribunal’s order directing settlement under RBI guidelines.
- Whether RBI circulars have statutory force sufficient to give rise to a right enforceable by mandamus under Articles 226/32.
Legislation cited
Subjects
RBI guidelinesOne‑time settlementNon‑performing assetsBanking Regulation ActEquality clauseNon‑discriminatory treatmentStatutory circularsAppellate Tribunal jurisdictionPublic sector bankDebt recovery
Judgment
[2009) 11 S.C.R. 803
MIS. SARDAR ASSOCIATES & ORS. A
v.
PUNJAB & SINDH BANK & ORS.
(Civil Appeal Nos. 4970-4971 of 2009)
JULY 31, 2009
B
[S.B. SINHA AND DEEPAK VERMA, JJ.)
Banking Regulation Act, 1949 - ss. 21 and 36 - Power
of Reserve bank to control advances by banking companies
- Default in discharge of liabilities by borrowers and assets c
declared as Non-performing assets - Bank-creditor seeking
r recovery of amount from borrower-debtor - Tribunal issuing
recovery certificate - Borrower seeking one time settlement
l of disputes as per RBI guidelines, however not accepted by
bank - Allowed by appellate tribunal but set aside by High D
Court - Sustainability of - Held: Not sustainable - RBI is
entitled to formulate policies which the banking companies are
bound to follow-It issued circular whereof, one time settlement
scheme formulated for recovery of NPA below 10 crores -
Bank is a public sector bank and bound by said guidelif)es - E
Board of directors of bank had accepted th.e guidelines -
Thus, bank is guilty of violation @!. equality clause - Order of
High Court set aside.
In these appeals, the order passed by Division
Bench of High Court, setting aside the order of Debt F
Recovery Appellate Tribunal directing the respondent-
bank to settle the case of the appellants ·in terms of the
guidelines issued by RBI as applicable at the time of
declaring the account as Non Performing Assets and not
to recover the said amount. in terms of the recovery G
certificate issued by the Debts Recovery Tribt.tnal, is
,~
under challenge.
Allowing the appeals, the Court
.
~ 803 H
'
804 SUPREME COURT REPORTS [2009] 11 S.C.R.
A HELD: 1. A bare perusal of s. 21 of the Banking
Regulation Act, 1949 would clearly show that the Reserve
Bank of India is entitled to formulate the policies which
the banking companies are bound to follow. As regards
Reserve Bank of India guidelines, it was the direction of
B the appellate tribunal that the respondent-bank should
settle the case of the appellants under the RBI guidelines
through a One Time Settlement and should invite a
proposal for settlement and recovery of the agreed
amount. Thus, the impugned judgment cannot be •
c sustained and is set aside. [Paras 16, 46 and 48] [814-G;
830-C, E, F]
2.1. The guidelines were issued by the Reserve Bank
of India. It clearly refers to a circular dated 19.08.2005
issued by the Reserve Bank of India in terms whereof it
D was directed that one time settlement scheme for
recovery of NPA below Rs. 10 crore was laid down. The l.
.
~
said letter was issued pursuant to the aforementioned
circular in terms whereof one time settlement scheme
was formulated for recovery of NPA below Rs. 10 crores.
E It was categorically stated therein that the same was
required to be implemented by all public sector banks.
The guidelines issued were to provide a simplified, non-
discretionary and non-discriminatory mechanism therefor
in SME sector. It was categorically stated that all public
F sector banks shall uniformly implement these guidelines.
Respondent-Bank concededly is a public sector bank. It
was, therefore, bound by the said guidelines. [Paras 18
and 19] [816-E-H; 817-A]
2.2. The correspondences between the appellants
G
and the respondent clearly show that the respondent-
Bank had resorted to the guidelines issued by the ;c
Reserve Bank of India alone and pursuant to or in
furtherance of the offer made by the bank, a proposal
came to be made by the appellants in terms of its letter.
H
SARDAR ASSOCIATES & ORS. v. PUNJAB & SINDH 805
BANK & ORS.
Such a proposal was made bona fide. It was within the A
framework of the guidelines issued by the RBI. [Paras 23
and 24] [820-G-H; 821-A; 822-D-E]
2.3. Appellants filed a writ petition which was
dismissed on the ground of suppression. The said order 8
of High Court has been affirmed by this Court. But the
same by itself did not preclude the appellants to
approach the appellate tribunal. The jurisdiction of the
appellate tribunal is co-extensive with the powers of the
Tribunal. The memo of appeal filed by the appellants C
before the tribunal clearly shows that the contentions
with regard to the enforcement of the said provisions had
been made. It is, therefore, not correct to contend that no
pleadings were made for the purpose of enforcing the
RBI guidelines in respect of one time settlement. [Paras
26, 27 and 28] [822-G; 824-C-E] D
J. 2.4. It may be that no specific prayer was made but
the same keeping in view the provisions of the
Securitization and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002, did not E
preclude the appellate tribunal to consider the offer of the
appellants. The appellate tribunal in terms of the
provisions of the Act like the original trib.unal is interested
only in recovery of the amount. While doing so, it, has the
requisite jurisdiction to consider the prayer made by a F
debtor for one time settlement particularly in view of the
fact that the same is within the purvi,ew of One Time
Settlement Scheme of the Reserve Bank of India. If a
public sector bank is otherwise bound by any guidelines
issued by the Reserve Bank of India, there is no reason G
as to why the same cannot be enforced in terms of the
provisions of the Act by the tribunal and consequently
by the appellate tribunal. It is not a case where the
appellants hpd.prayed for qµashing of a policy decision
taken by the respondent-Bank. The question which arose H
806 SUPREME COURT REPORTS [2009] 11 S.C.R.
A for consideration before the appellate tribunal as also ,
before the High Court was as to whether offer having
been made by the bank to appellants, it could have
turned around and contend that only because the
appellants had furnished security to the extent of Rs.11
B crores, the same by itself would entitle it to take recourse
to a discriminatory treatment. The answer must be
rendered in the negative. [Para 29) [824-F-H; 825-A-B]
2.5. The offer made by the appellants in terms of the
RBI guidelines for one time settlement was Rs.
C 3,45,31,000/-, however, keeping in view the fact that the
respondent-Bank had a better security available to it
demanded a sum of Rs. 4.92 crores. The Board of
Directors of the Bank itself had accepted the guidelines.
While making a deviation, the Board of Directors of a
D public sector bank could not have taken recourse to a
policy decision which is per se discriminatory.
Respondent-Bank is a 'State' within the meaning of
Article 12 of the Constitution of India apart from the fact
that it is bound to follow the guidelines issued by the
E Reserve Bank of India. If, therefore, the broad policy
decisions contained in the guidelines were required to be
followed, the power of the Board of Directors to make
deviation in terms of Clause 4 thereof would only be in
rel<1tion to some minor matters which does not touch the
F broad aspects of the policy decision and in particular the
-'
one governing the non-discriminatory treatment. In a
case of this nature, it is satisfied that the respondent-
Bank is guilty of violation of the equality clause contained
in the RBI guidelines as also Article 14 of the
G Constitution. [Paras 30 to 33] [825-C-H; 826-A]
2.6. It is not in dispute that appellants were defaulters
as also that it comes within the purview of the Small and
Medium Enterprises sector. Respondent-Bank itself had
H
SARDAR ASSOCIATES & ORS. v. PUNJAB & SINDH 807
BANK & ORS .
• made an offer to accept the proposal of the appellants in A
regard to enforcement of one time settlement pursuant
to the RBI guidelines. It w~s all along aware that the
amount of securities was lying with it It is only pursuant
thereto the directions had been. issued by the tribunal.
[Paras 34 and 35] [826-C-D] B
2.7. If in terms of tile guidelines issued by the
Reserve Bank of India a right is created in a borrower,
"' there is no reason as to why a writ of mandamus could
not be issued. It is assumed that while exercising its
power under Article 226 of the Constitution of India, the
c
High Courts may or may not issue such a direction but
the same, by itself, would not mean that the High Court
would be correct in interfering with an order passed by
the appellate tribunal which was entitled to consider the
effect of such one time settlement. [Para 40] [828-E-F] D
2.8. A distinction must be made between statutory
and non-statutory guidelines and as also between the
circular which are relevant but not binding on the third
parties and which are imperative in character. [Para 45] E
[830-B]
Central Bank of India v. Ravindra and Ors. (2002) 1 SCC
367, relied on.
Arunima Baruah v. Union of India and Ors, (2007) 6 SCC F
120; S.J.S. Business Enterprises (P) Ltd. v. State of Bihar and
Ors. (2004) 7 SCC 166; Corporation Bank v. D,S. Gowda and
Anr. (1994) 5 sec 213; Oriental Bank of Commerce v.
Sunder Lal Jain and Anr. (2008) 2 SCC 280; Union of India
and Anr. v. Azad! Bachao Ando/an and Anr (2004) 10 SCC G
1; Commissioner of Income Tax v. Anjum M.H. Ghaswala
,• and Ors. (2002) 1 sec 633; uco Bank v. CIT (1999) 4 sec
599 and BSNL & Anr. v. BPL Mobile Cellur Ltd. and Ors.
2008 (8) SCALE 106, referred to.
H
808 SUPREME COURT REPORTS [2009] 11 S.C.R.
A Case Law Reference:
(2001) 6 sec 120 Referred to. Para 26
(2004) 1 sec 166 Referred to. Para 26
(2002) 1 sec 367 Relied on. Para 36
B
(1994) 5 sec 213 Referred to. Para 37
(2008) 2 sec 280 Referred to. Para 38
(2004) 10 sec 1 Referred to. Para 42
c
(2002) 1 sec 633 Referred to. Para 43
(1999) 4 sec 599 Referred to. Para 44
2008 (8) SCALE 106 Referred to. Para 45
D CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.
4970-4971 of 2009.
From the Judgment & Order dated 01.02.2008 in Review
Petition No. 7 of 2008 in CWP No. 8267 of 2007 and Order
E dated 21.11.2007 in CWP No. 8267 of 2007 of the High Court
of Punjab & Haryana at Chandigarh.
Dr. Abhishek Manu Singhvi. P.S. Patwalia, Alok Kumar
Agrawal Sanjay Chabra, Shipra Singh, Garima Prashad for the
F Appellants.
l.P. Singh, Dipinder Singh, Gagandeep Sharma, Ajay Pal.
Dharmendra Kumar Sinha. for the Respondents.
The Judgment of the Court was delivered by
G S.B. SINHA, J. 1. Leave granted.
2. Source of power on the part of the Reserve Bank of India '·
to issue circulars and guidelines as regards one time settlement
is the question involved herein. It arises out of a judgment and
H
SARDAR ASSOCIATES & ORS. v. PUNJAB & SINDH 809
BANK & ORS. [S.B. SINHA, J.)
order dated 1.02.2008 passed in Review Petition No. 7 of 2008 A
and order dated 21.11.2007 passed by a Division Bench of
the Punjab and Haryana High Court in C.W.P. No. 8267 of
2007 whereby ar.d whereunder an order dated 13.04.2007
passed by the Debt Recovery Appellate Tribunal, Delhi (for
short "the Appellate Tribunal") directing the respondent - bank B
to settle the case of the appellants herein in terms of the said
guidelines as applicable at the time of declaring the account
as Non Performing Assets (NPA) and not to recover the said
amount in terms of the judgment and recovery certificate dated
23.11.2006 issued by the Debts Recovery Tribunal - II, c
Chandigarh (for short "the Tribunal") in Appeal No. 26 of 2007,
was set aside.
3. Bereft of all unnecessary details, the fact of the matteir
reads as under:
D
Appellants herein as also the Performa respondent Nos.
2 to 11 along with one Smt. Darshan Kaur (since deceased)
obtained the facilities for grant of loan for a sum of Rs. 3,
54,50,000/- for business purposes which was being carried out
by them under the name and style of M/s. Sardar Associates E
Limited, appellant No. 1 herein. The said amount was
sanctioned and disbursed from time to time. Indisputably, the
appellant No. 2 and the Proforma respondent Nos. 2 to 11 as
also the said Smt. Darshan Kaur stood as guarantors. Appellant
Nos. 1 and 2 as also Proforma respondent Nos. 5 and 7 also F
mor:tgaged their properties in favour of the respondent - Bank
by way of security to the said amount. Defaults having been
made in discharging their liabilities, their assets were declared
as NPA as per the guidelines issued by the Reserve Bank of
India.
G
4. A proceeding was initiated by the respondent - Bank
purporting to be under Section 13(2) of the Securitization and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (for short "the 2002 Act") for recovery of the
said amount together with interest upon due service of a notice H
810 SUPREME COURT REPORTS (2009] 11 S.C.R.
A in terms of Sub-section (4) of Section 13 thereof. The total
amount of claim laid before the Tribunal by the bank as against
the debtors was Rs. 4, 16,85.443.62 inclusive of interest upto
31.07.2003. The said application was allowed by the Tribunal
whereagainst an appeal was preferred before the Appellate
B Tribunal.
5. Indisputably, pursuant to the judgment and order of the
Tribunal, a recovery certificate was issued for recovery of a sum
of Rs. 4, 16,58,581.62 along with pendent lite and future interest
'
C at the rate of 12% p.a. with quarterly rests from the date of filing
of the application till realization.
It is at that stage, the appellant No. 1 approached the
respondent - bank for settlement of their disputes purported
to be in terms of the guidelines issued by the Reserve Bank of
D India. They made an offer for a one time settlement for a sum
of Rs. 345.31 lakhs. The said proposal, however, was not
accepted by the respondent - Bank.
6. Respondent - Bank issued a circular bearing No. 176
E dated 18.10.2005. Questioning the validity of the said circular,
the appellant No. 1 filed a writ petition before the High Court
contending that the same was contrary to the guidelines issued
by the Reserve Bank of India insofar as the same relates to
the scheme for one time settlement for the Small and Medium
Enterprises. A prayer was also made therein that the
F respondent - Bank be directed to settle the matter as per the
RBI guidelines. The said writ petition was dismissed only on
the premise that the appellant No. 1 had not disclosed therein
that it had already approached the Tribunal for recovery of the
amount in question.
G
7. A special leave petition filed thereagainst which was
marked as SLP (C) No. 21134 of 2006 was, however,
dismissed by this Court on 31.01.2007.
8. Appellants approached the Appellate Tribunal in terms
H
SARDAR ASSOCIATES & ORS. v. PUNJAB & SINDH 811
BANK & ORS. [S.B. SINHA, J.)
" of Section 21 of the Recovery of Debts Due to Banks and A
Financial Institutions Act, 1993 (for short "the 1993 Act'} The
appeal was entertained. Respondent - Bank also preferred an
appeal before the Appellate Tribunal claiming pendent lite and
future interest at the rate of 16.50% with quarterly rests instead
of 12% p.a. as had been granted by the Tribunal in its order B
dated 23.11.2006. The Appellate Tribunal by a judgment and
order dated 13.04.2007, dismissed the appeal preferred by the
respondent - Bank and allowed that of the appellants and the
-. Performa Respondent Nos. 2 to 11 directing the respondent -
Bank to make one time settlement in terms of the guidelines c
issued by the Reserve Bank of India as. was prevailing at the
relevant time.
9. We must, however, place on record that the Appellate
Tribunal affirmed the judgment as also the validity of the recovery
certificate dated 23.11.2006. D
10. It furthermore permitted the appellants and the
Proforma Respondent Nos. 2 to 11 to sell the secured
properties for clearing the dues in terms of one time settlement
scheme and ordered that such an exercise must be completed E
within a period of four months during which period the bank was
restrained from taking any coercive steps against them.
11. Respondent - Bank filed writ application thereagainst
which by reason of the impugned judgment has been allowed.
1
Appellants filed a review application before the High Court F
which has been dismissed.
12. Dr. Abhishek Manu Singhvi, learned senior counsel
appearing on behalf of the appellants would contend that the
scheme in relation to one time settlement having been issued G
by the Reserve Bank of India in exercise of its statutory power
, conferred upon it under Section 21 of the Banking Regulation
Act, 1949 (for short "the 1949 Act"), the impugned judgment
cannot be sustained.
H
812 SUPREME COURT REPORTS [2009] 11 S.C.R.
A The learned counsel in this behalf has fLtrthermore drawn
our attention to various correspondences exchanged by and
between the parties to urge that the respondent - Bank
entertained the said application asking for proposal from the
appellants and, thus, they are estopped and precluded from
B contending that the Board of Directo.rs of the respondent - Bank
themselves had made a scheme which was required to be
followed.
13. Mr. l.P. Singh, learned counsel appearing on behalf of
•
the respondent - Bank, on the other hand, urged:
c
(i) The Appellate Tribunal committed a serious
illegality in issuing the directions upon the bank to
undertake implementation of scheme of one time
settlement in terms of the guidelines issued by the
D Reserve Bank of India as no such prayer was
made in the memo of appeal.
(ii) The respondent - Bank in law was entitled to make
a deviation from the g-uidelines issued by the
Reserve Bank of India.
E
(iii) Only in terms of the guidelines issued by the Board
of Directors of the respondent - Bank the
relaxation was to be granted to the extent of 30%
wherefor the extent of the value of NPA was
F required to 1-:le considered and keeping in view of
the fact that the amount available with the Bank was
more than sufficient to wipe off the debts, the bank
was not bound to accept the one time settlement.
(iv) The Appellate Tribunal had no jurisdiction to declare
G
the guidelines issued by the bank to be a nullity
particularly when no such case was made out in the
memo of appeal nor the appellants had pleaded the
same. The purpose and object for which the RBI
guidelines were issued was for realization of the
H
SARDAR ASSOCIATES & ORS. v. PUNJAB&. SINDH 813
BANK & ORS. [S.B. SINHA, J.]
loan amount from chronic defaulters. A
(v) The guidelines issued by the Reserve Bank of India
were not in terms of Section ·21 of the 1949 Act but
were in terms of Section 35A thereof and, thus, the
same was not binding on the banks. B
14. The Reserve Bank of India is a statutory authority. It
exercises supervisory power in the matter of functionings of the
Scheduled Banks. The matter relating to supervision of
Scheduled Banks is also governed by the Reserve Bank of
India Act. For the aforementioned purpose, the Reserve Bank C
is entitled to issue guidelines from time to time.
15. The Parliament also enacted the 1949 -Act to
consolidate and amend the law relating to banking.
Section 5(1) of the 1949 Act defines "Reserve Bank" to D
mean the Reserve Bank of India constituted under Section 3
of the Reserve Bank of India Act, 1934.
By reason of various provisions of the 1949 Act, the
Reserve Bank is empowered to control and supervise the E
functioning of the Scheduled Banks. The 1949 Act also provides
for power of the Reserve Bank to control advances by banking
companies in terms of Section 21 of the 1949 Act which reads
as under:
F
"21 - Power of Reserve Bank to control advances by
banking companies
( 1) Where the Reserve Bank is satisfied that it is necessary
or expedient in the public interest or in the interests of
depositors or banking policy so to do, it may determine G
the policy in relation to advances to be followed by banking
companies generally or by any banking company in
particular, and when the policy has been so determined,
all banking companies or the banking company concerned,
as tl1e case may be, shall be bound to follow the policy as H
814 SUPREME COURT REPORTS [2009] 11 S.C.R.
A so determined.
(2) Without prejudice to the generality of the power vested
in the Reserve Bank under sub-section (1) the Reserve
Bank may give directions to banking companies, either
generally or to any banking company or group of banking
B
companies in particular, as to-
(a) the purposes for which advances may or may not be
made,
c (b) the margins to be maintained in respect of secured
advances,
(c) the maximum amount of advances or other financial
accommodation which, having regard to the paid-up
capital, reserves and deposits of a banking company and
D other relevant considerations, may be made by that
banking company to any one company, firm, association
of persons or individual,
(d) the maximum amount up to which, having regard to the
E 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
F
made or guarantees may be given.
(3) Every banking company shall be bound to comply with
any directions given to it under this section."
G 16. A bare perusal of the aforementioned provision would
clearly show that the Reserve Bank of India is entitled to
formulate the poliC:es which the banking companies are bound
to follow. Sub-section (3) of Section 21 of the 1949 Act clearly
mandates that every banking company shall be bound to comply
H with the directions given to it in terms thereof. Section 35A of
SARDAR ASSOCIATES & ORS. v. PUNJAB & SINDH 815
BANK & ORS. [S.B. SINHA, J.]
the 1949 Act, which was inserted by the Banking Companies A
(Amendment) Act, 1956, empowers the Reserve Bank to issue
directions inter alia in the interest of banking policy. Section 36
of the 1949 Act also provides for further powers and functions
of ttie Reserve Bank of India; clause (d) of Sub-section (1)
whereof reads as under: B
"36. Further powers and functions of Reserve Bank - (1)
The Reserve Bank may-
J (a) *** *** ***
c
(b) *** *** ***
(c) *** *** ***
(d) at any time, if it is satisfied that in the public interest or
in the interest of banking policy or for preventing the affairs D
of the banking company being conducted in a manner
detrimental to the interests of the banking company or its
depositors it is necessary so to do, by order in writing and
on such terms and conditions as may be specified therein-
E
(i) require the banking company to call a meeting of its
directors for the purpose of considering any matter relating
to or arising out of the affairs of the banking company; or
require an officer of the banking company to discuss any
such matter with an officer of the Reserve Bank;
F
(ii) depute one or more. of its officers to which the
proceedings at any meeting of the Board of directors of
the ba.nking company or of any committee or of any other
body constituted by it; require the banking company to give
an opportunity to the officers so deputed to be heard at G
such meetings and also require such officers to send a
report .of such proceedings to the Reserve Bank;
(iii) require the Board of directors of the banking company
or any committee or any other body constituted by it to give H
816 SUPREME COURT REPORTS (2009) 11 S.C.R.
A in writing to any officer specified by the Reserve Bank in
this behalf at his usual address all notices of, and other
communications· relating to, any meeting of the Board,
committee or other body constituted by it;
(iv) appoint one or more of its officers to observe the
B
manner in which the affairs of the banking company or of
its offices or branches are being conducted and make a
report thereon;
(v) require the banking company to make, within such time
c as may be specified in the order, such changes in the
management as the Reserve Bank may consider
necessary."
17. We may, however, place on record that the Parliament,
0 in its wisdom, inserted Section 36A of the Act by the Banking
Companies (Amendment) Act, 1959 in terms whereof some of
the provisions of the 1949 Act were not to be applied to certain
banking companies.
18. Indisputably, the guidelines were issued by the
E Reserve Bank of India by reason of a letter dated 3.09.2005
addressed to the Chairman/ Managing Director of all public
secfor banks. It clearly refers to a circular dated 19.08.2005
issued by the Reserve Bank of India in terms whereof it was
directed that one time settlement scheme for recovery of NPA
F b~low Rs. 10 crore was laid down. The said letter was issued
pursuant to the aforementioned circular in terms whereof one
time settlement scheme was formulated for recovery of NPA
below Rs. 10 crores. It was categorically stated therein that the
same was required to be implemented by all public sector
G banks. The guidelines issued were to provide a simplified, non-
discretionary and non-c:jiscriminatory mechanism therefor in
SME sector. It was categorically stated that all public sector
banks shall uniformly implement these guidelines.
19. Respondent - Bc.:nk concededly is a public sector
H
SARDAR ASSOCIATES & ORS. v. PUNJAB & SINDH 817
BANK & ORS. [S.B. SINHA, J.]
bank. It was, therefore, bound by the said guidelines. A
Salient features of the guidelines are as L'llder:
"(c) The guidelines will cover cases onwhich the banks
have initiated action under the Securitization and
Reconstruction of Financial Assets and 8
Enforcement of Security Interest Act, 2002 and also
cases pending before Courts/DRTs/BIFR subject to
consent decree being obtained from the Courts/
DRTs/BIFR"
c
xxx xxxxxx
(1i) Settlement Formula amount
(a) NPAs classified at Doubtful or Loss as on March
31, ·2004. 0
The minimum amount that should be recovered in
respect of compromise settlement of NPAs
classified as doubtful or loss as on 31st March
2004 would be 100% of the outstanding balance in E
the account as on the date on which the account
was categorized as doubtful NPA.
(b) NPAs classified as sub-standard as on 31st
March, 2004 which became doubtful or loss
\ . F
subsequently:
The minimum amount that should be recovered in
respecf of NPAs classified as sub-standard as on
31st March, 2004 which became doubtful or loss
subsequently would be 100% of the outstanding G
balance in the account as on the date on which the
account was categorized as doubtful NPAs plus
interest at existing Basic Prime Lending Rate from
1st April, 2004 till the date of final payment"
H
818 SUPREME COURT REPORTS [2009] 11 S.C.R.
A (iii) Payment
The amount of settlement arrived at in both the
above cases, should preferably be paid in one lump
sum. In cases where the borrowers are unable to
p~y the entire amount in one lump sum, at least 25%
B
of the amount of settlement should be paid upfront
and the balance amount of 75% should be
recovered in installments within a period of one
year together with interest at the existing Prime
Lending Rate from the date of settlement up to the
c date of final payment.
xxxxxx xxx
(V) Non-discretionary treatment:
D
Banks shall follow the above guidelines for one time
settlement of all NPAs covered under the scheme,
•
without discrimination and a monthly report on the
progress and details of settlement should be
submitted by the concerned authority to the next
E high authority and their Central Office. Banks may
go for wide publicity and also give notice January
31, 2006 to the eligible defaulting borrowers to avail
of the opportunity for one time settlement of their
outstanding dues in terms of these guidelines.
F Adequate publicity to these guidelines through
various means must be ensured.
xxx xxxxxx
4. Any deviation from the above settlement guidelines
G for any borrower shall be made only by the Board
of Directors."
The said circular letter was issued by the Chief General
Manager of the Reserve Bank of India. The High Court in its
H impugned judgment inter alia was of the opinion that he had
SARDAR ASSOCIATES & ORS. v. PUNJAB & SINDH 819
BANK & ORS. [S.B. SINHA, J.]
no authority therefor. A
20. Before, however, adverting to the question as to
whether the Board of Directors of the respondent -Bank could
deviate from the aforementioned guidelines and, if so, to what
extent, we may notice the following correspondences, which
B
was exchanged by the parties hereto, so as to enable us to
consider as to whether the respondent - Bank had itself applied
the said guidelines in case of the appellants or not.
21. We may notice that the respondent - Bank appears
tb have accepted the said guidelines as is evident from the c
letter dated 24.11.2005 by the respondent Bank to the
appellants in the following terms:
"As per head office guidelines, one time settlement
scheme for recovery of NPA accounts upto 10 crores has D
been formulated. Your account also falls within this
~ scheme. As the said scheme is Non-discretionary, you are
advised to come forward for settlement of your account as
per terms & conditions of the scheme"
Clauses 4.1 and 4.2 read as under: E
"4.1. NPAs classified as Doubtful or Loss as on 31st
March 2004:
The minimum amount that should be recovered in
F
respect of compromise settlement of NPAs classified as
doubtful or loss as on 31st March, 2004 would be 100%
of the· outstanding balance in the account as on the date
on which Jhe account was categorized as doubtful NPA.
4.2. NPAs Classified as sub-standard as on 31st March, G
2004 which became doubtful or loss subsequently:
The minimum amount that should be recovered in respect
of NPAs classified as sub-standard as on 31st March,
2004 which became doubtful or loss subsequently would H
820 SUPREME COURT REPORTS [2009] 11 S.C.R.
A be 100% of the outstanding balance in the account as on
the date on which the account was categorized as doubtful
NPAs plus interest at existing Basic Prime Lending Rate
from 1st April, 2004 till the date of final payment."
Under the heading "Non-Discretionary Treatment", the
B
bank stated:
"7.1. RBI has advised that the guidelines for compromise
settlement of NPAs in SME sector are non-discretionary
and non-discriminatory. Therefore, if the borrower fulfills the
c eligibility criteria for consideration of OTS under these
guidelines then amount of OTS will be determined strictly
in terms of Clause No.4.1 and 4.2 above irrespective of
any other factor."
D 22. Furthermore, the respondent - Bank in its letter dated
1.12.2005, stated:
"Please refer our letter regarding the above mentioned
policy of RB.I. We are again enclosing herewith the
photocopy of the policy. You are requested to come
E forward as per policy for settlement of the account at your
earliest."
The respondent - Bank yet again in its letter dated
01.03.2006, stat~d:
F
"This is in continuation of our letter dated 17.02.2006 on
the above subject. Please note the OTS scheme of RBI is
valid upto 31.03.2006 as such please send your request
well within the last date so that the proposal may be put
up to the competent authority."
G
23. It is on the aforementioned premise, the merit and
purport of the correspondences exchanged between the parties t
must be considered. The said correspondences clearly show
that the respondent - Bank had resorted to the guidelines
H issued by the Reserve Bank of India alone and pursuant to or
SARDAR ASSOCIATES & ORS. v. PUNJAB & SINDH 821
BANK & ORS. [S.B. SINHA, J.]
\
in furtherance of the offer made by the bank, a proposal came A
to be made by the appellants in terms of its letter dated
2.03.2006; the relevant portion whereof reads as under:
"2. As per RBI guidelines, the minimum amount that shall
be recovered in respect of one time settlement of NPAs B
classified as doubtful of loss as on march 31, 2004 will be
100% of the outstanding balance in the account as on the
date on which the account was categorized as doubtful
NPA. As the outstanding balance in our account as on
March 31, 2004 was Rs.285.;38 lacs, the settlement amount
in respect on one time settlement of our account works out
c
to be Rs.283.38 lacs as per RBI guidelines, out of which
we have already deposited a sum of Rs.26. 76 lacs
(including Rs.25.00 lacs in Third Party No lien account
subject to the condition that the said amount shall be
appropriated by the bank only after approval of D·
compromise proposal submitted by us plus Rs.1.76 lacs
in instalments). Hence we are unable to understand how
you have worked out the minimum recoverable amount to
be Rs.370.49 lacs.
E
3. RBI guidelines on OTS-for SME account nowhere links
the amount that shall be recovered with the fair market
value of the security charged to the bank. The fair market
value of security is just an assessment of the market value
of the security and not the actual value of the security. F
4. RBI guidelines are very clear for one time settlement of
dues for SME accounts with outstanding of Rs.10.00 crore
or less before March 31, 2004, that those account should
be settled at principal amount.
G
5. NPAs classified as doubtful as on March 2004 are
settling their accounts as per these guidelines. We also
seek justice and deserve the right to settle our account
strictly as per RBI guidelines, which are non-discretionary
and non-discriminatory in nature. Its worth while to mention H
822 SUPREME COURT REPORTS [2009) 11 S.C.R.
,
A here that other nationalized bank in country are settling
NPAs as per guidelines of RBI.
However, to avoid any further litigations and to show our
sincere intentions to settle the account, we are even ready
to pay the interest for 2 years, as per your instructions and
B
categorization, upto the time when the account was first
categorized as "doubtful" by bank.
Therefore, we request you to consider our proposal for one
time settlement at Rs.345.31. The proposed amount of
c Rs.345.31 lacs has been arrived at as the amount which
would have been outstanding in our account on the date
when our account was categorized "doubtful" for the first
time, i.e., by adding interest for 2 years at PLR Rs.59.93
lacs on the amount of Rs.285.38 lacs which was
D outstanding in our account as on the date when our
account was categorized as non performing asset."
24. Such a proposal was made bona fide. It was within the
framework of the guidelines issued by the Reserve Bank of
E India.
25. It is not necessary to place on record the further
correspondences exchanged between the parties although our
~ention has been drawn thereto in terms whereof the
appellants had all along been making sincere efforts to one time
F settlement within the parameters of the guidelines issued by the
Reserve Bank of India.
26. It may be true that the appellants filed a writ petition
before the Punjab and Haryana High Court which was
G dismissed on the ground of suppression.
In Arunima Baruah v. Union of India and Ors. [(2007) 6
sec 120] the question involved was how far and to what extent ..
suppression of fact by way of non- disclosure would affect a
person's right of access to justice which is a human right.
H
SARDAR ASSOCIATES & ORS. v. PUNJAB & SINDH 823
BANK & ORS. [S.B. SINHA, J.]
It was held: A
"21. Ubi jus ibi remedium is a well-known concept
The court while refusing to grant a relief to a person who
comes with a genuine grievance in an arguable case
should be given a hearing. (See Bhagubhai Dhanabhai
B
Khalasi.) In this case; however, the appellant had
suppressed a material fact. It is evident that the writ petition
was filed only when no order of interim injunction was
• passed. It was obligatory on the part of the appellant to
disclose the said fact.
c
22. In this case, however, suppression of filing of the
suit is no longer a material fact. The learned Single Judge
and the Division Bench of the High Court may be correct
that, in a case of this nature, the Court's jurisdiction may
not be invoked but that would not mean that another writ D
petition would not lie. When another writ petition is filed
disclosing all the facts, the appellant would be approaching
the writ court with a pair of clean hands, and the Court at
that point of time will be entitled to determine the case on
merits having regard to the human right of the appellant to E
access to justice, and keeping in view the fact that judicial
review is a basic feature of the Constitution of India."
It was opined:
"12. It is trite law that so as to enable the court to F
refuse to exercise its discretionary jurisdiction suppression
must be of material fact. What would be a material fact,
suppression whereof would aisentitle the appellant to
obtain a discretionary relief, would depend upon the facts
and circumstances of each case. Material fact would mean G
material for the purpose of determination of the lis, the
logical corollary whereof would be that whether the same
·\
was material for grant or denial of the relief. If the fact
suppressed is not material for determination of the lis
between the, parties, the court may· not refuse to exercise H
824 SUPREME COURT REPORTS [2009) 11 S.C.R.
A its discretionary jurisdiction. It is also trite that a person
invoking the discretionary jurisdiction of the court cannot
be ·allowed to approach it with a pair of dirty hands. But
even if the said dirt is removed and the hands become
clean, whether the relief would still be denied is the
B question."
[See also S.J.S. Business Enterprises (P) Ltd. v. State
of Bihar an? Others (2004) 7 SCC 166)
27. The said order of the Punjab and Haryana High Court
C dated 21.11.2006 again indisputably has been affirmed by this
Court. But, in our opinion; the same by itself did not preclude
the appellants to approach the Appellate Tribunal. The
jurisdiction of the appellate tribunal is co-extensive with the
powers of the Tribunal. The memo of appeal filed by the
D appellants before the Tribunal clearly shows that the contentions
with regard to the enforcement of the aforementioned provisions
had been made therein.
28. It is, therefore, not correct to contend that no pleadings
E were made for the purpose of enforcing the RBI guidelines in
respect of one time settlement. (_
29. It may be that no specific prayer was made but the
same, in our opinion, keeping in view the provisions of the
2002 Act, did not preclude the Appellate Tribunal to consider
F the offer of the appellants. The Appellate Tribunal in terms of
the provisions of the Act like the original TrLb_unal is interested
only in recovery of the amount. While doing so, it, in our
considered opinion, has the requisite jurisdiction to consider
the prayer made by a debtor for one time settlement particularly
G in view of the fact that the same is within the purview of One
Time Settlement Scheme of the Reserve Bank of India. If a
public sector bank is otherwise bound by any guidelines issued
by the Reserve Bank of India, we see no reason as to why the
same cannot be enforced in terms of the provisions of the Act
H by the Tribunal and consequently by the Appellate Tribunal. It
SARDAR ASSOCIATES & ORS. v. PUNJAB & SINDH 825
BANK & ORS. [S.B. SINHA, J.]
is not a case where the appellants had prayed for quashing of A
a policy decision taken by the respondent - Bank. The question
which arose for consideration before the Appellate Tribunal as
also before the High Court was as to whether offer having been
made by the bank to the appellants herein, it could have turned
around and contend that only because the appellants had B
furnished security to the extent of Rs. 11 crores, the same by
itself would entitle it to take recourse to a discriminatory
treatment. The answer to the said question must be rendered
.. in the negative .
30. We may notice that the offer made by the appellants
c
in terms of the RBI guidelines for one time settlement was Rs.
3,45,31,000/-, however, keeping in view the fact that the
respondent - Bank had a better security available to it
demanded a sum of Rs. 4.92 crores.
D
31. The Board of Directors of the Bank itself had accepted
the guidelines. It, however, in its own guidelines, stated:
"11.3 After calculation of the MRA as per point 11.1 and 11.2
above, due consideration to Securities available charged
E
in the case is to be given, in case of secured and partially
secured assets. In these accounts, MRA is to be calculated
as under:
=
MRA 70% of the value of securities as per valuation
certificate, issued in terms of Law Circular No. 171." F
32. Does it satisfy the non-discriminatory clause laid down
by. the Reserve Bank of India and accepted by the Reserve
Bank is the question. While making a deviation, the Board of
Directors of a public sector bank could not have taken recourse G
to a policy decision which is per se discriminatory. Respondent
- Bank is a 'State' within the meaning of Article 12 of the
Constitution of India apart from the fact that it is bound to follow
the guidelines issued by the Reserve Bank of India.
33. If, therefore, the broad policy decisions contained in H
826 SUPREME COURT REPORTS [2009] 11 S.C.R.
A the guidelines were required to be followed, the power of the
Board of Directors to make deviation in terms of Clause 4
thereof would only be in relation to some minor matters which
does not touch the broad aspects of the policy decision and in
particular the one governing the non-discriminatory treatment.
B In a case of this nature, we are satisfied that the respondent -
Bank is guilty of violation of the equality clause contained in the
Reserve Bank of India guidelines as also Article 14 of the
Constitution of India.
34. The fact that the appellants were defaulters is not in
C dispute. It is also not in dispute that it comes within the purview
of the Small and Medium Enterprises sector.
35. It is furthermore not in dispute that the respondent -
Bank itself had made an offer to accept the proposal of the
D appellants in regard to enforcement of one time settlement
pursuant to the RBI guidelines. Indisputably, it was all along
aware that the amount of securities was lying with it. It is only
pursuant thereto the directions had been issued by the Tribunal
E 36. The question as to whether the guidelines issued by
the Reserve Bank of India are binding or [lot now stands
concluded by reason of a Constitution Bench Judgment of this
Court in Central Bank of India v. Ravindra and Others [(2002)
1 sec 367] in the following terms:
F "55 ... (5) The power conferred by Sections 21 and
35-A of the Banking Regulation Act, 1949 is coupled with
duty to act. The Reserve Bank of India is the prime
banking institution of the country entrusted with a
supervisory role over banking and conferred with the
G authority of issuing binding directions, having statutory
force, in the interest of the public in general and preventing
banking affairs from deterioration and prejudice as also
to secure the proper management of any banking company
generally. The Reserve Bank of India is one of the
H watchdogs of finance and economy of the nation. It is, and
SARDAR ASSOCIATES & ORS. v. PUNJAB & SINDH 827
~ BANK & ORS. [S.B. SINHA, J.]
,, it ought to be, aware of all relevant factors, including credit A
conditions as prevailing, which would invite its policy
decisions. RBI has been issuing directions/circulars from
time to time which, inter alia, deal with the rate of interest
which can be charged and the periods at the end of which
rests can be struck down, ihterest calculated thereon and B
charged and capitalised. It should continue to issue such
directives. Its circulars shall bind those who fall within the
net of such directives. For such transaction which are not
squarely governed by such circulars, the RBI directives
may be treated as standards for the purpose of deciding c
whether the interest charged is excessiv~. usurious or
opposed to public policy."
37. Yet again in Corporation Bank v. D.S. Gowda and
Another [(1994) 5 SCC 213], this Court held:
D
"17 ... As pointed out earlier, under the Banking
J,
Regulation Act wide powers are conferred on the ReseNe
Bank to enable it to exercise effective control over all
banks. Sections 21 and 35-A en.able it to issue directives
in public interest to regulate the charging of interest on E
loans or advances made from time to time ... •
38. We may, however, notice that a Division Bench of this
Court without noticing the decision of the Constitution Bench
in Central Bank of India (supra) in Oriental Bank of Commerce
F
v. Sunder Lal Jain and Another [(2008) 2 SCC 280] opined
as under:
"8. A perusal of the aforesaid revised guidelines
issued by Reserve Bank of India on 29-1-2003 for
compromise settlement of chronic non-performing assets G
(NPAs) of public sector banks will show that the same will
be applicable and will cover NPAs classified as
substandard as on 31-3-2000 which have subsequently
become doubtful or loss. The revised guidelines have no
application where the· NPAs have not been classified as H
828 SUPREME COURT REPORTS [2009] 11 S.C.R..
A substandard as on 31-3-2000. It is not in dispute that the
account of the respondents was a performing account
between 1-4-2000 and 31-3-2001. According to the
records of the Bank, the account was consigned to protest
bill account on 15-10-2001 and was declared as NPA as
B per prudential norms of RBI on 31-3-2001. The
respondents contested the case before ORT and did not
admit their liability. No such plea was raised that their
account had become NPA as on 31-3-2000 before ORT.
Therefore, the revised guidelines issued by Reserve Bank
c of India on 29-1-2003 for compromise settlement of
chronic non-performing assets (NPAs) of public sector
banks were not at all applicable to the facts and
circumstances of the case and no direction could be
issued to declare the respondents' account as NPA from
31-3-2000."
D
39. Judicial discipline mandates the bench comprising of
two Judges to follow the judgments of the Constitution Bench
having regard to Article 141 of the Constitution of India.
E 40. If in terms of the guidelines issued by the Reserve Bank
of India a right is created in a borrower, we see no reason as
to why a writ of mandamus could not be issued. We would
assume, as has been contended by Mr. Singh, that while
exercising its power under Article 226 of the Constitution of
F India, the High Courts may or may not issue such a direction
but the same, in our opinion, by itself, would not mean that the
High Court would be correct in interfering with an order passed
by the Appellate Tribunal which was entitled to consider the
effect of such one time settlement.
G 41. The question pertaining to the present matter is
regarding whether or not a circular issued by a statutory body
for the governance and regulation of certain agreements
confers a legal right upon the aggrieved party in case of non-
compliance or complete and absolute deviation from the said
H guidelines by the body formulating such circulars. Alternately,
SARDAR ASSOCIATES & ORS. v. PUNJAB & SINDH 829
BANK & ORS. [S.B. SINHA, J.]
~
can the aggrieved party, then, claim its right of judicial review A
under Article 32 or 226 to quash the said circular in case of
discriminatory application of such rules/guidelines so
mentioned in the circular.
42. In Union of India and Anr. v. Azadi Bachao Ando/an B
and Anr [(2004) 10 SCC 1], it was held that a circular issued
by the Central Board of Direct Taxes(CBDT) was not
inconsistent with the provisions of the Income-Tax Act and was
valid and efficacious. The assessing officers chose to ignore
the guidelines and hence the CBDT was justified in issuing
"appropriate guidelines" under Circular No. 789. The said
c
Circular does not in any way crib, confine or cabin the powers
of the assessing officers with regard to any particular
assessment. It merely formulates broad guidelines to be
applied in the matter of assessment of the assesses covered
by the provisions of the lndo - Mauritius Double Taxation D
j Avoidance Convention, 1983.
43. In Commissioner of Income Tax v. Anjum M.H.
Ghaswala and Ors. [(2002) 1 sec 633], it was pointed out that
the circulars issued by CBDT under Section 119 of th.e Income E
Tax Act have statutory force and would be binding on every
income-tax authority although such may not be the case with
regard to press releases issue by the CBDT for information of
the public.
F
44. In UCO Bank v. CIT [(1999) 4 SCC 599], this Court
opined that "the circulars as contemplated therein cannot be
adverse to the assessee." Thus, the authority which wields the
power for its own advantage when required to wield it in a
manner it considers just by relaxing the rigour of the law or in
other permissible manners as laid down in Section 119. The G
power is given for the purpose of just, proper and efficient
management of the work of assessment and in public interest.
45. In BSNL & anr. v. BPL Mobile Ce/fur Ltd. & ors. [2008
(8) SCALE 106], it was held that "the direction contained in the H
830 SUPREME COURT REPORTS [2009] 11 S.C.R.
A said circular letters are relevant for the officers who are •.
authorised not only to grant licenses but also enter into
contracts and prepare bills. The circular letters having no
statutory force undoubtedly would not govern the contract".
B A distinction, thus, must be made between statutory and
non-statutory guidelines. A distinction must also be made
between the circular which are relevant but not binding on the
third parties and which are imperative in character.
46. As regards the Reserve Bank of India guidelines, it was
C the direction of the Appellate Tribunal that the Respondent-Bank
should settle the case of the appellants under the RBI guidelines
through a One Time Settlement and should invite a proposal
for settlement and recovery of the agreed amount.
D 47. The Appellate Tribunal in passing its order followed the
dicta laid down in Constitution Bench judgment in Central Bank
of India (supra), wherein it was held that:
"..... RBI directive have not only statutory flavour, any
contravention thereof or any default in compliance therewith
E is punishable under sub-section (4) of s . 46 of the Banking
Regulation Act, 1949".
48. We, therefore, are of the opinion that the impugned
judgment cannot be sustained. It is set aside accordingly. The
F appeals are allowed. However, in the facts and circumstances
of the case, there shall be no order as to costs.
N.J. Appeals allowed.
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