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TMI Blog2004 (2) TMI 378X X X X Extracts X X X X X X X X Extracts X X X X ..... alit that there is no case made out on the basis of public misfeasance. He fairly stated that at the highest the case could only be that of a violation of statutory duties. However, as observed above, compensation for violation of a statutory duty to enable individuals to recoup financial lone has never been recognized in India. In our view the Petitioners having chosen on their own to deposit amounts with the SBL cannot claim to recover against RBI. In such a case the loss has to be allowed to fall where it falls. - WRIT PETITION (C) NO. 119 OF 2001 - - - Dated:- 26-2-2004 - S.N. VARIAVA AND H.K. SEMA, JJ. Soli J. Sorabjee, L.N. Rao, K.N. Bhat, Uday U. Lalit, Prashant Kumar, Prasenjit Keswani, Joseph Pookkatt, Rohan Thawani, Kuldeep Parihar, H.S. Parihar, S. Wasim A. Qadri, Nikhil Sakhardande, Saurabh Kirpal, Ms. Sushma Suri, O.P. Gaggar, Ms. Shipra Ghose, Ranjan Mukherjee, Suchit Mohanty and Parijat Sinha for the Appearing Party . JUDGMENT S.N. Variava, J. - This Writ Petition has been filed challenging a scheme framed by the Reserve Bank of India (for short RBI). Mr. Lalit very fairly stated at the beginning that he is not challenging the scheme and that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a manner detrimental to the interests of its present or future depositors; ( c )that the general character of the proposed management of the company will not be prejudicial to the public interest or the interest of its depositors; ( d )that the company has adequate capital structure and earning prospects; ( e )that the public interest will be served by the grant of a licence to the company to carry on banking business in India; ( f )that having regard to the banking facilities available in the proposed principal area of operations of the company, the potential scope for expansion of banks already in existence in the area and other relevant factors the grant of the licence would not be prejudicial to the operation and consolidation of the banking system consistent with monetary stability and economic growth; ( g )any other condition, the fulfilment of which would, in the opinion of the Reserve Bank, be necessary to ensure that the carrying on of banking business in India by the company will not be prejudicial to the public interest or the interests of the depositors. (3A) Before granting any license under this section to a company incorporated outside India, the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extent of Rs. 50 crores by way of a rights preferential issue. RBI made it clear that it would consider issue of a license to SBL only after the capital was so raised. SBL managed to raise an extent of Rs. 15.18 crores, out of which approximately Rs. 5.80 crores was by means of diversion of SBL s own funds. 6. In February-March 1997 RBI conducted financial inspection of SBL and found several shortcomings and deficiencies in its functioning. Yet on 25th June, 1997 RBI authorised SBL to open a branch in Delhi at the Metropolitan Centre, 37 DLF, Kirti Nagar, New Delhi. All the Petitioners are depositors/co-depositors in this branch of SBL. It appears that they deposited pursuant to advertisements issued by SBL offering a higher rate of interest than other banks. 7. In a special scrutiny conducted in 1998 RBI found that non-performing assets or bad debts were Rs. 58.26 crores, whereas provision was for only Rs. 1.52 crores. This meant that SBL had incurred a net loss of Rs. 56.22 crores. Ultimately by a letter dated 15th December, 1998 RBI issued a show-cause notice to the Managing Director Shri A.M. Mustafi under section 36AA(2) and pending reply prohibited him from acting as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compulsory to display the license issued by RBI at a prominent place. He submitted that the whole purpose is that the public would know whether to deal with a particular bank or not. He submitted that if a licence is granted by RBI then the public would presume that the financial condition of the company and the general character of its management are good and that the company had an adequate capital structure and earning prospects. He submitted that in this case RBI was already aware, before it granted permission to open a branch, that SBL had not been able to raise the sum of Rs. 50 crores as directed by RBI; that it could raise its capital only to the extent of Rs. 15.18 crores of which Rs. 5.80 crores was by siphoning of the bank s own funds; that there were several irregularities in its functioning and that it had advised SBL to rectify its irregularities. He submitted that yet RBI granted the license to open a branch thereby enabling SBL to dupe innocent depositors. He submitted that even though RBI became aware by 1998 that non-performing assets were to the tune of Rs. 58.26 crores and that there was a short provision of Rs. 55.72 crores RBI allowed SBL to issue advertisemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Motor Accidents Claims Tribunal has jurisdiction under section 110(1) of the Motor Vehicle Act, 1939 read with section 110B thereof [corresponding to sections 165 and 68(1) against the Railway Administration when a motor vehicle is hit by a railway train and whether the Tribunal can pass an award under section 110B against the Railways also, in addition to an award against the owner of the vehicle, driver and the insurer ?" 13. For our purposes questions 3 and 4 above are relevant. Whilst considering these questions it was noticed that in India, unlike as in England, no duties were directly imposed on the Railway Administration to erect gates or employ watchmen etc. at level-crossings if the railway line was cutting across a public road. It was noticed that the only provision was section 13 of the Railways Act which reads as follows : "13. Fences, screens, gates and bars. The Central Government may require that, within a time to be specified in the requisition or within such further time as it may appoint in this behalf, ( a )boundary-marks or fences be provided or renewed by a railway administration for a railway or any part thereof and for roads constructed in connec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in Anns case ( supra ) this Court held that two conditions must be proved for passing a duty of care on the exercise of statutory power, viz., first that it would have been irrational not to have exercised the power so that there was a public duty to act and secondly that the policy of the statute must have been to require compensation to be paid to persons who would suffer damages because the power conferred was not exercised at all or not exercised when it was generally expected to be exercised. This Court then held that these two conditions were fulfilled inasmuch as section 13 required the Central Government to send a requisition to Railways to build suitable gates, chain, bars, walls erected by the Railway Administration. This Court held that it was irrational not to have exercised the power as there was a public duty to do so. This Court then went on to hold that section 13 impliedly required compensation to be paid to the persons who would suffer damages because the powers was not exercised when it should have been exercised. 14. Strongly relying upon this case, Mr. Lalit submitted that the various provisions of the Act cast a duty upon RBI to properly monitor Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions on the part of the State when it takes any action in its statutory or executive authority. It is in this context that it was held that an executive authority must be rigorously held to standards by which it professed its actions to be judged and it must scrupulously observe those standards on pain of invalidation of an act in violation of them. Mr. Lalit submitted that, in this case, all persons who deposited with the Delhi Branch of SBL, relied on the license issued by RBI. He submitted that they presumed that such a license had been issued only because SBL functioning is sound and its management good. Mr. Lalit submitted that on the above principles this Court must direct RBI to pay all the depositors in full. 16. Mr. Sorabjee submitted, and in our view correctly, that the Indian cases relied upon by Mr. Lalit are all cases which relate to infringement of life and liberty under Article 21 i.e., where a person has been injured or killed. It is in those type of cases that the above mentioned principles have been applied in India. Mr. Sorabjee pointed that Mr. Lalit was not able to show any case where these principles have been applied to financial transactions underta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... care to arise. It was held that the Commissioner had no control over the day to day management of the Company and that the Ordinance did not give far reaching and stringent supervisory powers so as to warrant an assumption that all registered companies were sound and fully creditworthy. It was held that in any case of the Commissioner cannot reasonably be expected to know that would be depositors would rely on the fact of registration as a guarantee of the soundness of the Company. Mr. Sorabjee relied upon the case of Davis v. Radcliffe [1990] 2 All England LR 536. In this case the Plaintiff had deposited 7,000 with a Bank in Isle of Man. That Bank was licensed, under the Banking Act, for a number of years. The license was revoked only in June 1982. In August 1982 the bank collapsed with a deficit in excess of 40 million. An action was brought against the Isle of Man Finance Board and the Treasurer claiming damages for loss of amounts deposited with the Bank on the allegation that it was caused by the negligence of the defendants in carrying out their duties under the Banking Act. The alleged duties were the duties in issuing a license and/or the duty to refuse or to revoke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Second, as the essence of the tort is an abuse of power, the act or omission must have been done or made with the required mental element. Third, for the same reason, the act or omission must have been done or made in bad faith. Fourth, as to standing, the claimants must demonstrate that they have a sufficient interest to sue the defendant. Fifth, as causation is an essential element of the cause of action, the act or omission must have caused the claimants loss." Mr. Sorabjee submitted that in the present case there are no averments. He submitted that even if there were averments these are not matters which could be gone into in writ jurisdiction as it would require extensive evidence. He submitted that these are matters in which the Court could not pass any order in exercise of its writ jurisdiction. 17. We have heard the submissions of both the parties. Whilst we sympathise with the depositors for their loss, we are unable to accept the submission of Mr. Lalit that the principles laid down in cases relating to breach of Article 21 rights can be applied to cases of loss caused in financial transactions undertaken by individuals with open eyes. In our view the principles ..... X X X X Extracts X X X X X X X X Extracts X X X X
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