2009 (7) TMI 1274 - SC - Indian Laws

Source of power on the part of the RBI to issue circulars and guidelines as regards one time settlement - bank to settle the case 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 - Respondent Bank issued a circular bearing No. 176 dated 18.10.2005. Questioning the validity of the said circular - 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 ₹ 3, 54,50,000/- for business purposes - mortgaged their properties in favour of the respondent Bank by way of security - 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. The Appellate Tribunal affirmed the judgment as also the validity of the recovery certificate dated 23.11.2006. 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 within a period of four months during which period the bank was restrained from taking any coercive steps against them. Respondent Bank filed writ application thereagainst which by reason of the impugned judgment has been allowed. Appellants filed a review application before the High Court which has been dismissed. HELD THAT - 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 is entitled to issue guidelines from time to time. The Parliament also enacted the 1949 Act to consolidate and amend the law relating to banking. We may, however, place on record that the Parliament, 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. The guidelines were issued by the Reserve Bank of India by reason of a letter dated 3.09.2005 addressed to the Chairman/ Managing Director of all public sector 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 below ₹ 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 ₹ 10 crores. 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, nondiscretionary and non-discriminatory mechanism therefor in SME sector. It was categorically stated that all public sector banks shall uniformly implement these guidelines. Respondent Bank concededly is a public sector bank. It was, therefore, bound by the said guidelines. The said circular letter was issued by the Chief General Manager of the Reserve Bank of India. The High Court in its impugned judgment inter alia was of the opinion that he had no authority therefor. Whether the respondent Bank had itself applied the said guidelines in case of the appellants or not - We may notice that the respondent Bank appears to have accepted the said guidelines as is evident from the letter dated 24.11.2005 by the respondent Bank to the appellants. Such a proposal was made bona fide. It was within the framework of the guidelines issued by the Reserve Bank of India. It is not necessary to place on record the further correspondences exchanged between the parties although our attention has been drawn thereto in terms whereof the appellants had all along been making sincere efforts to one time settlement within the parameters of the guidelines issued by the Reserve Bank of India. It may be true that the appellants filed a writ petition before the Punjab and Haryana High Court which was dismissed on the ground of suppression. The said order of the Punjab and Haryana High Court 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 appellants before the Tribunal clearly shows that the contentions with regard to the enforcement of the aforementioned provisions had been made therein. 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. Keeping in view the provisions of the 2002 Act, did not 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 Tribunal 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 in view of the fact that the same is within the purview of One Time Settlement Scheme of the RBI. If a public sector bank is otherwise bound by any guidelines issued by the RBI, we see no reason 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 had prayed for quashing of 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 furnished security to the extent of ₹ 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. We may notice that the offer made by the appellants in terms of the RBI guidelines for one time settlement was ₹ 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 ₹ 4.92 crores. 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 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. 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. Whether the guidelines issued by the Reserve Bank of India are binding or not - stands concluded by reason of a Constitution Bench Judgment of this Court in Central Bank of India v. Ravindra and Others 2001 (10) TMI 1065 - SUPREME COURT . Yet again in Corporation Bank v. D.S. Gowda and Another 1994 (6) TMI 217 - SUPREME COURT this Court held 17 As pointed out earlier, under the Banking Regulation Act wide powers are conferred on the Reserve Bank to enable it to exercise effective control over all banks. Sections 21 and 35-A enable it to issue directives in public interest to regulate the charging of interest on loans or advances made from time to time 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. 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 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. In BSNL anr. v. BPL Mobile Cellur Ltd. ors. 2008 (5) TMI 648 - SUPREME COURT , it was held that the direction contained in the 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 . 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. As regards the Reserve Bank of India guidelines, it was 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. The Appellate Tribunal in passing its order followed the dicta laid down in Constitution Bench judgment in Central Bank of India 2001 (10) TMI 1065 - SUPREME COURT , wherein it was held that . ....RBI directive have not only statutory flavour, any contravention thereof or any default in compliance therewith is punishable under subsection (4) of S. 46 of the Banking Regulation Act, 1949 . We, therefore, are of the opinion that the impugned judgment cannot be sustained. It is set aside accordingly. The appeals are allowed.

Summary

Issues Involved:
1. Source of power of the Reserve Bank of India (RBI) to issue circulars and guidelines regarding one-time settlement.
2. Validity and applicability of the RBI guidelines for one-time settlement.
3. Jurisdiction and authority of the Debt Recovery Appellate Tribunal (DRAT) to enforce RBI guidelines.
4. Non-disclosure and suppression of facts by the appellants.
5. Binding nature of RBI guidelines on public sector banks.

Issue-wise Detailed Analysis:

1. Source of Power of the RBI to Issue Circulars and Guidelines:
The judgment delves into the statutory authority of the RBI to issue guidelines under Section 21 and 35A of the Banking Regulation Act, 1949. The RBI, being a statutory authority, exercises supervisory power over scheduled banks, including issuing guidelines for banking operations. Section 21 empowers the RBI to determine policies related to advances, which banks are bound to follow. The court highlighted that the RBI's guidelines have a statutory flavor and are binding on all public sector banks.

2. Validity and Applicability of the RBI Guidelines for One-Time Settlement:
The court examined the guidelines issued by the RBI for one-time settlement of non-performing assets (NPAs) below Rs. 10 crore. These guidelines were intended to provide a simplified, non-discretionary, and non-discriminatory mechanism for settlement. The court noted that the respondent bank, being a public sector bank, was bound by these guidelines. The guidelines mandated uniform implementation by all public sector banks and stipulated specific terms for settlement amounts and payment schedules.

3. Jurisdiction and Authority of the DRAT to Enforce RBI Guidelines:
The court affirmed the jurisdiction of the DRAT to enforce RBI guidelines. It was noted that the DRAT, in its order, directed the respondent bank to settle the case of the appellants as per the RBI guidelines. The court emphasized that the DRAT's jurisdiction is co-extensive with that of the Debt Recovery Tribunal (DRT) and includes the authority to consider the applicability of RBI guidelines in the settlement process. The court rejected the contention that the DRAT lacked jurisdiction to declare the bank's guidelines as nullity, stating that the DRAT had the requisite jurisdiction to enforce RBI guidelines.

4. Non-disclosure and Suppression of Facts by the Appellants:
The court addressed the issue of non-disclosure and suppression of facts by the appellants in their writ petition before the High Court. While the High Court dismissed the writ petition on grounds of suppression, the Supreme Court held that such suppression did not preclude the appellants from approaching the DRAT. The court cited the principle that suppression must be of material fact to disentitle a party from obtaining discretionary relief. The court concluded that the appellants' subsequent approach to the DRAT was permissible.

5. Binding Nature of RBI Guidelines on Public Sector Banks:
The court underscored the binding nature of RBI guidelines on public sector banks. It referred to the Constitution Bench judgment in Central Bank of India v. Ravindra, which held that RBI directives have statutory force and are binding on banks. The court reiterated that public sector banks, being "State" under Article 12 of the Constitution, are obligated to follow RBI guidelines. The court rejected the respondent bank's deviation from the guidelines, stating that such deviation violated the non-discriminatory clause of the RBI guidelines and Article 14 of the Constitution.

Conclusion:
The Supreme Court set aside the impugned judgment of the High Court and allowed the appeals. It held that the RBI guidelines for one-time settlement are binding on public sector banks and that the DRAT had the authority to enforce these guidelines. The court emphasized the non-discriminatory and statutory nature of the RBI guidelines and directed the respondent bank to settle the case of the appellants as per these guidelines.