ORIENTAL BANK OF COMMERCE v. SUNDER LAL JAIN & ANR

Citation: [2008] 1 S.C.R. 213

Court: Supreme Court of India

Bench: G.P. MATHUR, AFTAB ALAM

Case summary

ORIENTAL BANK OF COMMERCE v. SUNDER LAL JAIN & ANR.pdf

Judgment text

[2008] 1 S. C. R. 213 ORIENTAL BANK OF COMMERCE V. SUNDER LAL JAIN & ANR. (C. A. No. 82 of 2008) JANUARY 8, 2008 (G. P. MATHUR AND AFTAB ALAM, JJ.

) Banking I Banks: '1 Non-performing Assets (NPA) - Declaration of in terms of Reserve Bank of India's guidelines - Bank granting credit facility to respondent-customer who defaulted in repayment of amount - Recovery petition - Allowed by Debt Recovery Tribunal - Respondent filing writ petition for direction to Bank to apply RBI guidelines for reconciliation and settling accounts and to declare their account as NPA from a specified date - Allowed by High Court directing the Bank to recover the amount by quarterly instalments over a period of two years - A On appeal, Held: Statement by counsel of the Bank that his client would consider suggestions given by other side for considering his account as NPA from the specified date would not amount to consent by the Bank - Thus, there was no consent given by bank to declare the amount as NPA from the specified date - Moreover, revised guidelines issued by RBI will be applicable to NPAs classified as sub-standard - However, account of respondent-customer was performing.

account during the period - Under the circumstances, . A ·~ respondent's account cannot be declared as NPA from specified date - Hence RBI guidelines inapplicable- Recovery of Debt Due to Banks and Financial Institutions Act, 1993- S. 20. Writ of Mandamus - Issuance of- Held: High Court erred in issuing a writ of mandamus directing the appellant-bank to ')( declare respondent's account as NPA from specified date since for issuance of the writ there must be a legal right and . A respondent failed to show existence of such right - Writ Jurisdiction of High Court. Execution Proceedings - Staying of - Held: Order/ Decree passed by Debt Recovery Tribunal having not been challenged, attained finality - Therefore, execution of the decree could not be stayed. Words & Phrases: . ,, ' 'Afan-performing assets' - Meaning of in terms of guidelines issued by Reserve Bank of India. Respondents were sanctioned credit facility for Rs. 20 lakhs by the appellant-Bank.

They defaulted in repayment of the amount and their account was declared as Non Performing Assets (NPA) on 31. 3. 2001. The Bank filed a petition against the respondents before the Debt Recovery Tribunal (ORT). The petition was allowed by ORT by passing a decree in favour of the Bank for recovery of Rs. 20,27,862/- along with interest. The Bank initiated -,. ,, execution proceedings for recovery of the amount and recovery certificates were issued to respondents. The respondents did not file any appeal challenging the order/ decree passed by the ORT. Instead, the respondents filed writ petitions before Delhi High Court praying to issue a direction to the Bank, to declare their account as NPA from 31. 3. 2000 and apply RBI Guidelines for reconciliation and settling their accounts. The petitions were allowed by the . , A High Court. Hence the present appeal.

Appellant-Bank contended that it had filed a suit for recovery of the amount and the same had been decreed and thereafter a recovery certificate had also been issued in the execution proceedings initiated by it; that respondents did not file any appeal to challenge the decree passed by the ORT and, therefore, the same attained finality; and that the writ petition filed by the respondents to declare their account as NPA from 31. 3. 2000 and to apply the RBI guidelines to their case SUNDER LAL JAIN & ANR. was not at all maintainable and the order passed by the rf High Court is clearly erroneous in law. Respondents submitted that the order had been passed on consent of the parties and, therefore, it is not open to the appellant to challenge the same. . Allowing the appeal, the Court HELD: 1. The order of the High Court mentions that f the Bank has agreed to consider the suggestions/request t made by the respondents. It only means that the bank will examine and consider.

"Consider" means - to look at closely and carefully; to think or deliberate on; to take . . into account. There was thus no consent on the part of the appellant bank to declare the account in question as Non Performing Account from 31st March, 2000. statement by a counsel for a party that his client will consider a particular suggestion given by the other side would not amount to a consent by the concerned party ,J ,. Itthe bank had filed a suit for recovery of the amount and the same had been decreed on 14. 11. 2003 and thereafter a recovery certificate had also been issued on 8. 12. 2003 in the execution proceedings initiated by the appellant. The respondents did not file any appeal to challenge the decree passed by the ORT ahd, therefore, the same attained finality. In these circumstances, the writ petition filed by the respondents to declare their account as NPA from 31. 3.

2000 and to apply the RBI guidelines to their ~ ~ case was not at all maintainable and the order passed by the High Court is clearly erroneous in law. Learned counsel for the respondents has, on the other hand, tried to support the order passed by the High Court and has submitted that the same had been passed on consent of the parties and, therefore, it is not open to the appellant to challenge the same. )ti Regarding the submission of learned counsel for the respondents that the order under challenge has been passed on consent of the parties, it may be noted that the High Court has recorded that "the first respondent has agreed to consider declaring the account as NPA from 31st March, 2000". Learned counsel for the appellant bank has vehemently submitted that no consent had been given by the counsel for the bank to declare the account as NPA from 31st March, 2000, nor any such instructions had been given to the counsel by the appellant bank.

That apart, the order of the High Court mentions "has agreed to consider". It only means that the bank will examine and consider. "Consider" means - to look at closely and carefully; to think or deliberate on; to take into account. There was thus no consent ~· . on the part of the appellant bank to declare the account as NPA from 31st March, 2000. A statement by a counsel for a party that his client will consider a particular suggestion given by the other side would not amount to a consent by the concerned party and an order passed on such a statement of the counsel cannot be said to be an order passed on consent. It is, therefore, not possible to accept the contention raised by learned counsel for 0 the respondents that the impugned order of the High Court has been passed on the consent of the appellant bank and consequently the present appeal is not maintainable. 5.

Before considering the submission made by learned counsel for the parties on merits of the case, it is necessary to take note of the essential features of the revised guidelines issued by the Reserve Bank of India on January 29, 2003 regarding Non-Performing Assets of public sector banks which read as under:- "Revised guidelines for compromise settlement of chronic Non-Performing Assets (NPAs) of public sector banks DBOD. BP. BC. 65/21. 04. 117/2002-2003 January 29, 2003 Chairman and Managing Directors of all Public Sector Banks. . Dear Sir, Please refer to our circular DBOD. BP. BC. 11/21. 01. 040/ 99-00 dated 27th July, 2000, setting out the guidelines for -"'I compromise settlements of chronic NPAs up to Rs. 5. 00 crore. 2. A review of compromise settlements of NPAs through the above scheme has revealed that the progress of recovery of NPAs through this mechanism has been moderate.

In consultation with Government of India, it has been decided to give one more opportunity to the ~· borrowers to come forward for settlement of their outstanding dues. Hence fresh guidelines are now issued, which will provide a simplified, non-discretionary and nondiscriminatory mechanism for compromise settlement of chronic NPAs below the prescribed value ceiling. All public sector banks should uniformly implement these guidelines, so that maximum realization of dues is achieved from the stock of NPAs within the stipulated time. 3. ............................................................................ > + (A) Guidelines for compromise settlement of chronic NPAs upto Rs. 10. 00 crore [i] Coverage a) The revised guidelines will cover all NPAs in all sectors irrespective pf the nature of business which have become 51 doubtful or loss as on 31 March 2000 with outstanding balance of Rs. 10. 00 crore and below on the cut off date.

f ~ b) The guidelines will also cover NPAs classified as substandard as on 31st March, 2000, which have subsequently become doubtful or loss. c) These guidelines will cover cases on which the banks have initiated action under the Securitisation and Reconstruction of Financial Asses and 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. d) Cases of wilful default, fraud and malfeasance will not rbe covered. e) The last date for receipt of applications from borrowers would be as at the close of business on 30th April, 2003. The processing under the revised guidelines should be completed by 31st October, 2003.

(ii) Settlement Formula - amount and cut off date , ' a) NPAs classified as Doubtful or Loss as on 31st March, 2000 The minimum amount that should be recovered under the revised guidelines in respect of compromise settlement of NPAs classified as doubtful or loss as on 31st March, 2000 would be 100% of the outstanding balance in the account as on the date of transfer to the protested bills account or the amount outstanding as on the date on which the account was categorized as doubtful NPAs, whichever "t. happened earlier, as the case may be; b) NPAs classified as sub-standard as on 31st March, 2000 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, 2000 which became doubtful or loss subsequently would f- ~ be 100% of the outstandinG balance in the account as on the date of transfer to the protested bills account or the amount as on the date on which the account was categorized as doubtful NPAs, whichever happened earlier, as the case may be, plus interest at existing Prime Lending Rate from 1st April, 2000 till the date of final payment. (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 pay the entire amount ' -I in one lump sum, at least 25% of the amount of settlement should be paid upfront and the balance amount of 75% should be recovered in instalments within a period of one year together with interest at the existing Prime Lending Rate frorn the date of settlement up to the date of final payment.

..................................................................................... f ·\ 6. A perusal of the aforesaid revised guidelines issued by the Reserve Bank of India on January 29, 2003 for compromise settlement of chronic Non-Performing. Assets (NPAs) of public sector banks will show that the same will be applicable and will cover NPAs classified as sub-standard as on 31st March, 2000 which have subsequently become doubtful or loss. The revised guidelines have no application where the NPAs have not been classified as sub-standard as on 31st March, 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 per prudential norms of RBI on 31. 3. 2001. The respondents contested the case before the 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 of India on January 29, 2003 for compromise settlement of chronic Non-Performing Assets 1 " I J,\ (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 31st March. 2000. The guidelines further provide that in case where borrowers are unable to pay the entire amount in lump sum, at least 25% of the amount of settlement should be paid upfront and the balance amount of 75% should be recovered in ~ instalments within a period of on. e year together with interest. The High Court, in the impugned order, has directed that the amount should be recovered by the appellant bank in quarterly instalments over a period of two years. This is again contrary to ,,..

• the revised guidelines, which provide a period of one year only for recovery of the entire amount. 7. It is important to note that the revised guidelines issued by the Reserve Bank of India on January 29, 2003 are only in the nature of internal guidelines for the banks and financial institutions. They are purely executive instructions and have no statutory force. They do not create any right in favour of the borrowers. In order to avail relief under the guidelines, the • •• eligibility criteria must be strictly fulfilled and one of them is that the account must be an NPA as on 31st March, 2000. What the respondents want is that a writ of mandamus be issued commanding the appellant bank to declare the respondents' account as NPA from 31st March, 2000 and apply the RBI Guidelines to their case whereby their liability towards the appellant bank will be considerably reduced by way of one time settlement. 8.

The principles on which a writ of mandamus can be tissued have been stated as under in 'The Law of Extraordinary Legal Remedies' by F. G. Ferris and F. G. Ferris, Jr. : Note 187- Mandamus, at common law, is a highly prerogative writ, usually issuing out of the highest court of general jurisdiction, in the name of the sovereignty, directed to any natural person, corporation or inferior court within the jurisdiction, requiring them to do some particular thing therein specified, and which appertains to their office or i \ duty. Generally speaking, it may be said that mandamus is a summary writ, issuing from the proper court, commanding the official or board to which it is addressed to perform some specific legal duly to which the party applying for the writ is entitled of legal right ~o have performed.

Note 192 -Mandamus is, subject to the exercise of a sound judicial discretion, the appropriate remedy to enforce a plain, positive, specific and ministerial duty presently existing and imposed by law upon officers and others who refuse or neglect to perform such duty, when . there is no other adequate and specific legal remedy and without which there would be afailure ofjustice. The chief function of the writ is to compel the performance of public duties prescribed by statute, and to keep subo,rdin. ate and inferior bodies and Tribunals exercising public functions within their jurisdictions. It is not necessary, however, that the duty be imposed by statute; mandamus lies as well for· the enforcement of a common Jaw duty. Note 196- Ma. ndamus is not a writ of right. Its issuance unquestionably lies in the sound judicial discretion of the Court, subject always to the well-settled principles which . have. been established by· the Courts.

An action in mandamus is not governed by the principles of ordinary litigation where the matters alleged on one side and not denied on the other are taken as true, and Judgment - pronounced thereon as of course. While mandamus is classed as alegal remedy, its issuance is largely controlled by equitable principles. Before granting the writ the Court may, and should, look to the larger public interest which may be. concerned - an interest which private litigants are apt to over-look when striving for private ends. The Court should act in view of all the existing facts, and with due regard to. the consequences which will result. It Is in every case aqlscretlon dependent upon all the surrounding facts and circumstances. · . F Note 208. -..........

The correct rule Is that mandamus will not ile where the duty Is clearly discretionary and the party upon whom the duty rests has exercised his discretion reasonably and within his jurisdiction, that Is, upon facts · sufficient to support his action. 'lo rl that there is any statute or rule having the force of law which casts a duty on the appellant bank to declare their account as NPA from 31 March, 2000 and apply R. B. I. guidelines to their case. --; . ' 10. The High Court, therefore, erred in issuing a writ of mandamus directjng the appellant bank to declare the 51 respondents' accoμl"! t as NPA from . 31 March, 2000 and to apply the RBI Guidelines to their case and communicate the outstandings which stia-11-be recoverable by quarterly instalments over;a_periQdofJwo Y~ers. Jbe la. ter part ofthe order passed by the High Court wherein a direction has been issued to stay the recoveryproceediQgs and the recovery certificate. issued against the re'spocideots has been ca.

ncelled is -c,ilso wholly illegal as the ~ ( .. ,··· ,, . "! ' . • decreep~~~ed by t. he DR! had attained finality and proceedings for exeq~ti_on pf decr~e could not be stayed in an independent writ p~ti. tion ,'! '! ben the. respondents had not chosen to assail the decree by filing an appeal; which is a statutory remedy provided und~r Section 20 of Recovery qf Debts Due to Banks and . Financial Institutions Act, 1993, . 11. In view'ofthe discussions made abo~e. the ~ppeal is 'allowed and the impugned judgment and order dated 17. 8. 2005 ->passed by the High Court is set aside. The appellant will be ··ehtitled to its costs. · ' ; : ~· -:; :t '<S. K.. S. Appeal allowed. ... ~· . "'' .. ' ,, .. ;·r\• '\ . ,,_. ·· ' . . ,. ,,. ·; l