2023 (3) TMI 792 - HC - Indian Laws

Restriction on having current account with other banks if that customer already had credit facilities in the form of Cash Credit/Export Packing Credit (CC/EPC) in the banking system. - RBI banking Policy - Seeking release of attachment of petitioner's accounts Petition tells us that with HDFC Bank, Jindal Cocoa has a current account. It also had availed certain Export Packing Credit facilities - Jindal Cocoa claims that HDFC Bank wrongfully reversed and withheld some amounts of interest subvention and wrongfully levied penal interest and other charges, debiting these to Jindal Cocoa s current account and EPC facilities. HELD THAT - As respondents point out, the entire purpose of the circular is to protect lending banks and to ensure smooth recovery. The RBI s Affidavit notes the prevalence and upsurge of frauds by diversion of funds those that ought to have come into the lending bank s account were being moved into current accounts elsewhere. The circular attempts to curb and stop this. The circular s purpose is not achieved by permitting an unregulated dispersal of inflows into diverse accounts at the option of the borrower. Correctly read, the circular demands what is best thought of as a funnelling or channelling mechanism once there is a lending account with an exposure of over Rs 50 crores, all inflows must be routed into that lending account. Inflow and outflow transactions in other current accounts are not permitted. If there are other current accounts, then these are carefully calibrated to be only collection accounts. The provision for an escrow mechanism is predicated on there being multiple lending banks. One of these may be chosen as the escrow bank. But where there is only one lending bank and there are also several other non-lending banks where a borrower has a current account then there is no question of an escrow . The entire concept of an escrow mechanism is to create a common pool from which disbursement is triggered only on the occurrence of defined events. Multiple lenders would be rival claimants to the funds in the escrow account. Which one should have priority, or how the funds should be shared (equally, pro rata to the size of the debt, according to priority of security, etc.) are all matters to be decided and which relate to distribution from this common escrow pool. In Ultratech Cement Ltd Anr v State of Rajasthan Ors. 2020 (7) TMI 513 - SUPREME COURT , in paragraphs 25, 25.3 and 25.5, the Supreme Court referred to the decision in Desh Bandhu Gupta 1979 (2) TMI 175 - SUPREME COURT but did not depart from the principle. In fact, in paragraphs 25 and 25.1, we find that the attempt was to persuade the Supreme Court that the authority s understanding deserved to be accepted. The doctrine was said to be embodied in a maxim which meant that the best way to construe a document would be to read it as it would have read when made. In paragraph 25.3, the Ultratech Cement court said that the principle is applied as a guide to interpretation by referring to the exposition that the document received from the competent authority at the relevant point in time. The Ultratech Cement Court said that when there is a contemporaneous construction placed by an executive or administrative authority charged with executing the statute in this case the RBI the Courts would lean in favour of attaching considerable weight to it, but it cannot be said that the understanding of a particular administrative or executive authority must be applied even if it is shown to be clearly erroneous. We are unable to see how in the facts and circumstances of the case this can be said the application of the circular can be said to be erroneous. On the contrary, it is our view that granting the Petitioner relief would in effect not only run directly contrary to the circular but would possibly permit the continuance or growth of the very mischief that is sought to be addressed. There is no merit in the petition - petition dismissed.

Summary

Issues Involved:
1. Applicability and interpretation of the RBI consolidated circular on opening and maintaining current accounts.
2. Maintainability of the Writ Petition against a private bank.
3. Contractual disputes between Jindal Cocoa and HDFC Bank.

Summary:

Issue 1: Applicability and Interpretation of the RBI Consolidated Circular
The primary issue concerns whether the RBI consolidated circular dated 19th April 2022, which consolidates previous circulars including one from 6th August 2020, applies to pre-existing current accounts held by Jindal Cocoa with other banks before its relationship with HDFC Bank. The circular aims to prevent fund diversion and fraud by ensuring that all transactions for borrowers with significant credit facilities are routed through their principal lending bank. Jindal Cocoa argued that the circular only restricts the opening of new current accounts and does not apply to pre-existing accounts. However, the court, relying on the RBI's affidavit and the interpretation of the circular, held that the circular applies to both new and pre-existing accounts, emphasizing the need for a funnelling mechanism to monitor and control fund flows to prevent misuse and ensure smooth recovery by lending banks.

Issue 2: Maintainability of the Writ Petition Against a Private Bank
The court examined whether a writ petition is maintainable against HDFC Bank, a private entity, under Article 226 of the Constitution of India. The court referred to precedents, including the Supreme Court's decision in Federal Bank Ltd v. Sagar Thomas and Ors., which held that private banks do not discharge public functions merely because they are regulated by the RBI. The court concluded that the writ petition is not maintainable against HDFC Bank as it does not perform a public duty or function. The court also rejected the argument that invoking RBI guidelines could bring the matter within the writ jurisdiction.

Issue 3: Contractual Disputes Between Jindal Cocoa and HDFC Bank
The court noted that the disputes regarding the reversal of interest subvention, penal interest, and other charges are contractual in nature and fall outside the remit of the writ court. These issues should be resolved through appropriate contractual dispute resolution mechanisms and not through a writ petition.

Conclusion:
The court rejected the petition, upholding the applicability of the RBI consolidated circular to both new and pre-existing current accounts and affirming that the writ petition against HDFC Bank is not maintainable. The court also emphasized that contractual disputes should be resolved through appropriate forums, not through writ proceedings. The request for an extension of the status quo order was also refused.