Kriztle Bath And Wellness Private Limited v. Union Of INDIA - Kerala High Court, 10 Mar 2023

Judgment

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE GOPINATH P.

FRIDAY, THE 10TH DAY OF MARCH 2023 / 19TH PHALGUNA, 1944 WP(C) NO. 18513 OF 2021 PETITIONER/S:

1 KRIZTLE BATH AND WELLNESS PRIVATE LIMITED, DOOR NO. 40/1118 ANNA MARIA COMPLEX, P.T. USHA ROAD, ERNAKULAM HEAD P.O, KOCHI-682 011, REPRESENTED BY ITS MANAGING DIRECTOR.

2 M.K. ANSARI, AGED 58 YEARS S/O. KOCHUMUHAMMED, MANAGING DIRECTOR, KRIZTLE BATH AND WELLNESS PRIVATE LIMITED, RESIDING AT VILLA 50, KRISTAL GARNET VILLAS, THRIKKAKKARA P.O, KOCHI, PIN-682 021 BY ADVS.

C.S.AJITH PRAKASH T.K.DEVARAJAN PAUL C THOMAS FRANKLIN ARACKAL M.B.SOORI BABU M.

NIDHIN RAJ VETTIKKADAN ADESH JOSHI HAARIS MOOSA RESPONDENT/S:

1 UNION OF INDIA, MINISTRY OF FINANCE, (DEPARTMENT OF FINANCIAL SERVICES), REPRESENTED BY ITS SECRETARY, JEEVAN DEEP BUILDING, PARLIAMENT STREET, NEW DELHI-110 001 2 RESERVE BANK OF INDIA, REPRESENTED BY ITS CHIEF GENERAL MANAGER, DEPARTMENT OF BANKING SUPERVISION 21ST FLOOR, CENTRAL OFFICE BUILDING, SHAHID BHAGAT SINGH MARG, FORT MUMBAI, MAHARASHTRA-400 001 3 BANKING OMBUDSMAN KERALA,

2 W.P.(C)No.18513/2021 C/O. RESERVE BANK OF INDIA, BAKERY JUNCTION, THIRUVANANTHAPURAM-695 033 4 STANDARD CHARTERED BANK, REPRESENTED BY ITS EXECUTIVE DIRECTOR AND HEAD, BUSINESS BANKING PRODUCT, RAJAJI SALAI, CHENNAI-600 001 5 HEAD CUSTOMER SERVICE, REPRESENTED BY AUTHORISED OFFICER, STANDARD CHARTERED BANK, 19-RAJAJI SALAI, CHENNAI-600 001 6 THE BRANCH MANAGER, STANDARD CHARTERED BANK, M.G. ROAD, ERNAKULAM-682 015 7 THE AUTHORISED OFFICER, STANDARD CHARTERED BANK, 23-25 MAHATMA GANDHI ROAD, FORT MUMBAI-400 001, MAHARASHTRA.

8 ADDL.R8.THE COMMITTEE FOR STRESSED MSME (MICRO, SMALL AND MEDIUM ENTERPRISES) STANDARD CHARTERED BANK, MUMBAI, REPRESENTED BY AUTHORISED OFFICER IS IMPLEADED AS PER THE ORDER DATED 08.08.2022 IN I.A. 3/2022 IN WPC 18513/2021.

BY ADVS.

MATHEW A KUZHALANADAN KURIAKOSE VARGHESE V.SHYAMOHAN GEORGE J.NALAPPAT JOSEPH KODIANTHARA (SR.)

THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 10.03.2023, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

3 W.P.(C)No.18513/2021 JUDGMENT The Writ Petition has been filed challenging Ext.P24 order of the Banking Ombudsman dismissing Ext.P23 complaint of the petitioners against the respondent Bank alleging non-compliance with circulars/notifications issued by the Reserve Bank of India (in short, the RBI). The petitioners state that the non-compliance of Ext.P5 and Ext.P7 circulars/notifications of the RBI and consequent classification of the account of the 1st petitioner Company as a ‘Non-Performing Asset’ (NPA) and the issuance of Ext.P18 notice under S.13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short, the SARFAESI Act), by the respondent Bank are illegal and unsustainable.

2. The 1st petitioner is a Private Limited Company and the 2nd petitioner is its Managing Director. The 1st petitioner Company availed a loan (Loan Against Property) of Rs.5,85,00,000/- from the respondent Bank by mortgaging its immovable properties. The loan was availed in September 2019 with a monthly EMI of Rs. 6,25,070/- for 180 months. It is the case of the petitioners that monthly EMIs were paid until March 2020.

In the meantime, the RBI issued a moratorium from March 2020 to August 2020 (six months) vide Ext.P3 and Ext.P4 circulars/notifications to cope with the financial difficulties caused due to Covid-19 pandemic. The

4 W.P.(C)No.18513/2021 petitioner Company availed the facility of the moratorium for five months from April 2020 to August 2020. The petitioners also availed additional loan facilities under Guaranteed Emergency Credit Line (in short, GECL) of Rs.1,15,71,147/. According to the petitioners, the RBI further issued Ext.P5 circular/notification that required a restructuring of loans that were standard assets as on 01-03-2020 (one among other conditions laid down in the notification) and that the restructuring of loans had to be implemented by 31.3.2021. It is the case of petitioners that the account of the petitioner Company was a standard asset on the said date, and therefore, the petitioner Company is entitled to the restructuring of its loan account. It is the case of petitioners that the respondent Bank should extend the residual period of the loan for a period of two years with or without moratorium as suggested by the Expert Committee through Ext.P6 report, as the said report is accepted by the RBI through Ext.P7 circular/notification. It is the case of the petitioners that the 1st petitioner Company requested the bank to restructure the loan account and to grant a two-year moratorium on principal as well as interest through Exts.P8 (dated 30-08-2020) and P9 (dated 28-10-2020) and the respondent Bank requested for various documents for restructuring the loan. The same was provided to the Bank through Ext.P10 (dated 10-02-2021). On 30-03-2021, the petitioner Company, through Ext.P11, sought the status of requests and

5 W.P.(C)No.18513/2021 requested an additional loan of Rupees Fifty lakhs. The respondent Bank through Ext.P12 reply (dated 31-03-2021), informed that the account of the petitioner Company was inactive. Further requests were made by the petitioners to restructure the loan, but the respondent Bank through Ext.

P17 communication requested the petitioners to remit five months' EMI of Rs.31,25,350. Thereafter, the respondent Bank issued notice dated 05.05.2021 under Section S.13(2) of the SARFAESI Act. It is the case of petitioners that, on o5-05-2021, RBI, through Ext.P21 circular/notification, provided for restructuring of loans advanced to MSMEs. Relying on the circular, the petitioner Company approached the respondent Bank again to consider restructuring. Still, the same was denied as the petitioners failed to remit the five months' EMI as requested by the respondent Bank.

Aggrieved by the non-compliance of the RBI circulars/notifications by the respondent Bank, petitioners filed a complaint vide Ext. P23 before the 3rd Respondent/Banking Ombudsman on 02-08-2021 to direct the respondent Bank to comply with RBI circulars/notifications. The Banking Ombudsman vide Ext. P24 order rejected the complaint on the ground that the complaint is beyond the purview of the Banking Ombudsman Scheme, 2006 (in short, ‘BOS, 2006' or ‘the scheme’) and, therefore, the complaint cannot be admitted under the said scheme. It is the case of the petitioners that non-admission of the complaint is against the provisions of the

6 W.P.(C)No.18513/2021 Banking Regulation Act, 1949 and the BOS, 2006. Aggrieved by the order of the Ombudsman and alleging the blatant violation of RBI circulars/notifications by the respondent Bank, the petitioners are before this Court under Article 226 of the Constitution of India.

3. Sri C.S. Ajith Prakash, the learned counsel appearing for the petitioners, would submit that the petitioner Company is entitled to get benefits under the circulars/notifications issued by the RBI. It is submitted that the petitioner Company availed a loan on September 2019 and had regularly paid EMI’s till March 2020 and thereafter availed moratorium for five months till August 2020. It is also submitted that the respondent Bank has cleared the EMI for September 2020 through NEFT transfer. The learned counsel for the petitioners further submitted that the petitioner Company is entitled to the restructuring of its loan account as provided in Ext.P5 circular/notification of the RBI. Relying on the said circular/notification, it is contended for the petitioners that, for restructuring of loans, the account of the petitioner Company should be a standard asset as on 01-03-2020 and that restructuring had to be implemented by 31-03-2021. It is submitted that the petitioner Company had paid EMI till March 2020 and its account was a standard asset as on 01-03-2020; therefore, it was entitled to the benefits of restructuring of the loan account as provided by the said circular/notification. It is submitted

7 W.P.(C)No.18513/2021 that the said circular/notification further provides that the asset classification of borrowers classified as standard may be retained as such and that the account which may have slipped into NPA category between March 2, 2020 and the date of implementation may be upgraded as a standard asset. It is contended that even if the account slipped into NPA, the respondent Bank should have upgraded the petitioners’ account as a standard asset and allowed restructuring. It is submitted that the respondent bank arbitrarily declared the account of the petitioner Company as NPA on 01-01-2021, before the last date for restructuring of loans (i.e.

31-03-2021) as provided by the said circular/notification. It is submitted that the act of the respondent bank in declaring the account of the petitioner Company as NPA, resulted in the denial of 10% additional GECL, a fully secured credit facility where the Government of India, through the National Credit Guarantee Trustee Company, provides a guarantee for the said loan. It is also submitted that the petitioner could not avail of any further loan from any other Bank as the account was in NPA status. The learned counsel for the petitioners submits that, in the light of Exts.P6 and P7 notifications/circular/notifications of the RBI, the residual tenure of loan should be extended by two years with or without payment moratorium. It is contended that the respondent Bank without complying the said circulars/notifications of RBI, failed to consider Exts.P8 and P9

8 W.P.(C)No.18513/2021 representations of the petitioners for restructuring of loan account and for granting a two-year moratorium on principal as well as interest payment.

The learned counsel contended that all the circulars/notifications issued by the RBI are binding on the respondent Bank and placed reliance on the judgments of Supreme Court in Canara Bank v. P.R.N Upadhyaya and Others, (1998) 6 SCC 526 and Elavakkattu Ceramics and Ors. v. Authorised Officer, Standard Chartered Bank and Ors., 2015 (1) KHC 265, to buttress his contentions. Relying on the above decisions, it is contended that the circulars issued by the RBI under Section 21 or 35 of the Banking Regulation Act, 1949 are statutory and must be complied with by the Banks.

It is further submitted by the petitioners that the respondent Bank without complying with the circulars/notifications issued by RBI, arbitrarily classified the account of the petitioner Company as NPA and issued Ext.P18 demand notice under S.13(2) of the SARFAESI Act. It is submitted that, through the notice, the petitioners learnt that the account was declared as NPA on 01-01-2021. It is further submitted that the RBI, through Ext.P21 circular/notification suggested relief measures to MSMEs, provided the borrower’s account was a standard asset on 31st March 2021 and that the account was not restructured in terms of the MSME restructuring circulars. It is contended that Ext.P21 circular/notification

9 W.P.(C)No.18513/2021 and Ext.P18 notice are both dated 05-05-2021, and it was with an intention not to provide the benefits of Ext.P21 circular/notification that the respondent Bank issued Ext.P18 demand notice on the same date.

The learned counsel for the petitioners submits that the petitioners preferred Ext.P23 complaint before the Banking Ombudsman to enforce the RBI guidelines. The complaint was rejected on the ground that restructuring is beyond the purview of the BOS, 2006. He placed reliance on the judgment of the Supreme Court in Durga Hotel Complex v.

Reserve Bank of India and Ors., AIR 2007 SC 1467, to contend that the Banking ombudsman has the jurisdiction to entertain the complaint and that there is a clear failure to exercise the jurisdiction conferred under the Ombudsman Scheme. It is contended that the complaint clearly falls within Clause 8(2)(d) of the BOS, 2006 and that Ext.P24 order of the ombudsman is liable to be set aside and the matter is to be reconsidered.

The counsel for the petitioners also submits that the respondent Bank has failed to comply with Ext.P27 circular/notification of the RBI. It is submitted that, as per Ext.P27 circular/notification, every bank has to maintain a committee for Corrective Action Plan and those accounts coming under the category of SMA-2 (Principal or interest payment overdue between 61-90 days) should be mandatorily forwarded to the said

10 W.P.(C)No.18513/2021 committee. The respondent Bank without forwarding the account to the said committee arbitrarily declared the account as NPA.

The counsel for the petitioners would submit that the petitioners remitted an amount of Rs. 1.50 Crores in a no-lien account as per the direction of this Court and thereafter, OTS proposals were made.

Still, the proposals were rejected as the same was not considered by any senior-level officer. It is also submitted that the RBI has not filed any counter affidavit even though the reliefs sought include a direction to the RBI to take action against the respondent Bank.

The learned counsel also submits that the petitioner cannot approach DRT for relief as the main issue concerns non-compliance with RBI circulars/notifications by the respondent Bank. He placed reliance on the judgment of the Supreme Court in Mardia Chemicals Ltd. and Ors. v. Union of India and Ors., AIR 2004 SC 2371, to contend that the petitioners cannot approach the DRT under the provisions of SARFAESI Act at the stage of 13(2) notice. It is contended that the challenge in DRT under Section 17 can be invoked only after some measures have been taken under Section 13(4) of the SARFAESI Act.

Sri. Joseph Kodianthara, learned Senior Counsel appearing for the answering respondents (R4 to R7) on the instructions of Adv. V. Shyamohan contends that the writ petition challenging Ext.P18

11 W.P.(C)No.18513/2021 notice issued under Section 13(2) of SARFAESI Act is not maintainable. It is submitted that non-compliance of RBI Guidelines or MSME measures cannot be raised in the proceedings initiated under the SARFAESI Act. It is submitted that petitioners should have approached the Debts Recovery Tribunal. In support of his contentions, the learned counsel placed reliance on the judgments of the Supreme Court in United Bank of India v.

Satyawati Tondon and Ors.; (2010) 8 SCC 110 and Assistant Commissioner (CT)LTU, Kakinada and Ors. v. Glaxo Smith Kline Consumer Health Care Limited; AIR 2020 SC 2819, to contend that when an effective alternative remedy is available, the petitioners cannot approach this court under Article 226 of the Constitution of India. It is contended that the account of the petitioner Company has become NPA and that the respondent Bank can proceed against the petitioner Company under the provisions of the SARFAESI Act. The learned counsel for the respondent Bank placed reliance on the judgments of the Supreme Court in State Bank of India v. Santosh Gupta and another, (2017) 2 SCC 538 and Transcore v. Union of India and another, (2008) 1 SCC 125, to contend that SARFAESI Act is an enactment that entitles banks to enforce their security interest outside the Court’s process and that the respondent Bank’s right cannot be defeated through a Writ Petition under Article 226 of the Constitution of India.

12 W.P.(C)No.18513/2021 10.

The counsel for the answering respondents submits that directing the Banking Ombudsman to consider the Ext.P23 complaint is against Clause 14 of the BOS,2006. It is contended that if petitioners are aggrieved by the rejection of a complaint under Clause 13 of the scheme, an appeal could be preferred before the appellate authority within 30 days from the date of receipt of said order. The learned counsel placed reliance on the judgment of the Supreme Court in Radha Krishan Industries v.

State of Himachal Pradesh and Ors. (2021) 6 SCC 771, to contend that when a right is created by a statute, which itself prescribes the remedy or procedure for enforcing the right or liability, resort must be had to that particular statutory remedy before invoking the discretionary remedy under Article 226.

11. It is submitted that the respondent bank had complied with Exts.P3 and P4 circulars/notifications of RBI and granted a moratorium to the petitioner Company. It is submitted that even assuming without admitting that moratorium was not granted to the petitioner Company, the Ext.R4(a) circular/notification states that in respect of accounts which were not granted any moratorium in terms of Covid 19 Regulatory Package, asset classification shall be as per the Master Circular [Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances] dated 01.07.2015 or IRAC norms. It is submitted by the

13 W.P.(C)No.18513/2021 answering respondents that Ext.P5 circular/notification is not applicable to the petitioner Company. Reliance is placed on paragraph 2(v) of Ext.P5 circular/notification to contend that only those accounts which have been classified as NPA between 02.03.2020 and the date of implementation of restructuring plan are required to be upgraded as a standard asset. It is further submitted that the account of the petitioner Company remained standard during the said period and that the account of the petitioner Company was classified as NPA only on 01.01.2021.

12.

The learned senior counsel for the answering respondents would submit that Ext.P7 circular/notification provides discretionary power to the concerned banks while implementing the resolution plan. It specifically does not grant any extension of moratorium or other benefits.

The learned counsel placed reliance on the judgment of Supreme Court in Small Scale Industrial Manufactures Association v. Union of India and Ors, (2021) 8 SCC 511, to contend that the bank had complied with the circulars/notifications of RBI and had granted moratorium till August 2020, in accordance with the circulars/notifications issued by the RBI and that the petitioners are not eligible for any extension of moratorium as its account was declared as NPA. It is also submitted that Ext.P21 circular/notification does not apply to the petitioners as the account of the petitioners was classified as NPA before 31-03-2021. It is

14 W.P.(C)No.18513/2021 submitted that Ext.P21 is applicable only on borrowers' accounts, being a standard asset as on 31-03-2021. Therefore, the respondent Bank cannot provide a moratorium or restructure the petitioners' account as per the said circular/notification. It is submitted that the RBI circulars/notifications relied on by the petitioners do not provide for granting or extending a moratorium for two years. It is further submitted that the petitioner Company vide Ext.P25 has sought to upgrade the account and to increase the tenure of the loan to 17 years and/ or to arrive at a One-time settlement payable in 6 instalments starting from April 2022. It submitted that all requests of the petitioners were duly considered by the respondent Bank and it was found that the petitioner Company is not eligible for the benefits claimed.

13.

It is submitted that the total amount due as on 07.12.2022 is Rs.7,63,94,474.50/- and no payment has been made from September, 2020. It is submitted that this Court on 09.09.2021 granted an ex-parte interim order directing the respondents not to initiate any proceedings against the petitioners and thereafter, the said interim order was extended till 20.12.2022, thereby the petitioners enjoyed the interim order granted to them for more than a year and have completely failed or willfully neglected to service the loan. It is submitted that the stay enjoyed by the petitioners has itself exceeded any benefit the petitioners would have been entitled to

15 W.P.(C)No.18513/2021 under any of the RBI guidelines relied on in the Writ Petition. It is submitted that by now, the value of the securities is below the total amount due to the Bank. It is submitted by the answering respondents that under the interim order of this court, an amount of Rs. 1.5 Crores has been deposited by the petitioners in a no-lien account and the same is to be appropriated only on further orders of this Court. It is submitted that the petitioner has submitted a representation for One Time Settlement offering the payment of Rs.4,20,58,562/- without claiming any benefit or entitlement under the RBI Guidelines. It is submitted that the said amount has been arrived at by the petitioners on an arbitrary estimate made by reducing 30% towards damage suffered for non-compliance of RBI Guidelines. It is submitted that the admitted amount of Rs.4.2 Crores may be directed to be paid, including Rs.1.5 Crores deposited in a no-lien account be allowed to be appropriated. It is submitted that said amount could not be treated as One Time Settlement and that the petitioners may submit

their

representation

for

any

One

Time Settlement/waiver/consideration over the balance outstanding amount after apportioning the amount of Rs.4.2 Crores.

14. I have considered the contentions raised. The petitioners complain inter-alia of (i) Non-adherence with guidelines issued by the RBI;

(ii) Improper classification of the account as a Non-performing Asset; and

16 W.P.(C)No.18513/2021 (iii) Illegal rejection of Ext.P.23 complaint by the Banking Ombudsman.

The petitioners have, therefore, prayed for the following reliefs:- (i) to quash Ext.P.24 and direct the Banking Ombudsman to re-consider Ext.P.23 complaint;

(ii) a direction to the bank to comply with the guidelines issued by the RBI and to grant the reliefs contemplated therein (including moratorium etc.)

(iii) a direction to the RBI to direct the bank to grant the benefits of the circulars to the petitioner;

(iv) declare that the Ext.P.18 notice is improper in law as it was issued without considering the claim of the petitioners for restructuring under RBI Guidelines;

(v) Direct the RBI to take action against the bank for violating the Guidelines;

(vi) declare that the petitioners are entitled to waiver of interest under RBI Guidelines; and (vii) direct the payment of compensation to the petitioner on account of the failure of the bank to comply with the RBI guidelines The first point to be considered is whether the rejection of Ext.P.23 complaint by the Banking Ombudsman is bad in law. The BOS, 2006 was introduced “with the object of enabling resolution of complaints relating to certain services rendered by banks and to facilitate the satisfaction or settlement of such complaints”. Clause 8 of the BOS, 2006 sets out the matters in respect of which a complaint can be made to the Banking Ombudsman. Clause 8(1) is not relevant to the facts of this case. Clauses 8(2) and 8(3) of the Scheme read as under:-

17 W.P.(C)No.18513/2021 “(2) A complaint on any one of the following grounds alleging deficiency in banking service in respect of loans and advances may be filed with the Banking Ombudsman having jurisdiction:

(a) non-observance of Reserve Bank Directives on interest rates;

(b) delays in sanction, disbursement or non- observance of prescribed time schedule for disposal of loan applications;

(d) non-adherence to the provisions of the fair practices code for lenders as adopted by the bank or Code of Bank’s Commitment to Customers, as the case may be;

(e) non-observance of Reserve Bank guidelines on engagement of recovery agents by banks; and (f) non-observance of any other direction or instruction of the Reserve Bank as may be specified by the Reserve Bank for this purpose from time to time.

(3) The Banking Ombudsman may also deal with such other matter as may be specified by the Reserve Bank from time to time in this behalf.” The complaint raised by the petitioner does not relate to any matter set out in sub-Clauses (a) to (e) of Clause 8(2) of the scheme. A reading of Clause 8(2)(f) and Clause 8(3) indicates that unless specified in this regard by the RBI, the non-adherence with any other guideline/direction or instruction of

18 W.P.(C)No.18513/2021 the RBI cannot be considered by the Banking Ombudsman. Therefore, the petitioners' prayer for quashing Ext P.24 can only be rejected.

The question as to whether the guidelines issued by the Reserve Bank of India have a statutory flavour or not is no longer res integra. It is settled that they do have statutory flavour. That brings us to the question as to whether the question of violation of the RBI Guidelines can be considered in a writ petition under Article 226 of the Constitution of India, in the facts and circumstances of this case. There is no dispute that proceedings have already been initiated by the respondent bank under the provisions of the SARFAESI Act, by issuing a demand notice under Section 13(2) of that Act.

A Division Bench of this Court in Kuruvithadam Agencies (Pvt) Ltd.

and another, v. The Authorized Officer and another; 2021 /KER/20923 (Judgment dated 28.5.2021 in W.A 1584/2021) has considered an identical issue. The contentions taken in that Writ Appeal, as set out in paragraph 7 of the Judgment read as under :- 7. On the above pleadings, the appellants have filed this appeal raising the following grounds:

A. The learned Single Judge seriously erred to appreciate the facts and law involved in the present case in a right prospective and failed to consider the fact that in extraordinary circumstances High Court can exercise Writ jurisdiction when procedure required to be complied at the threshold has not been done. In the instant case in spite of Exhibit P15 to P18

19 W.P.(C)No.18513/2021 notifications issued by Reserve Bank of India, including such ones in the aftermath of COVID 19 pandemic regarding classification of accounts, the same was blatantly violated resulting serious procedural laps infringing their fundamental rights guaranteed under Articles 14 and 19 of the Constitution of India.

B. Relying on the decisions of the Hon'ble Supreme Court in Whirlpool Corporation v. Registrar of Trade Marks & others [(1998) 8 SCC 1) and Harbanslal Sahnia & another v. Indian Oil Corporation & others [(2003) 2 SCC 107] as regards the rule of exclusion, the appellants have contended that in appropriate cases in spite of availability of alternative remedy, the High Court may still exercise its Writ jurisdiction, in at least three contingencies, viz., (i) where the writ petition seeks enforcement of any of the fundamental rights; (ii) where there is failure of principles of natural justice;

and, (iii) where order or proceedings are wholly without jurisdiction or the virus of the Act is challenged. In the instant case, there is a clear violation of fundamental rights of the appellants as well as it is a clear instance wherein the respondent Bank have declared their account as NPA, without authority, in view of express bar placed by RBI through its notifications, and in spite of compelling cause, writ court proceeded to dismiss the writ petition.

C. Section 2(o) of the SARFAESI Act defines a non performing asset to be such an account being classified so by the Bank or Financial Institutions as substandard or loss asset in accordance with the guidelines issued by regulatory bodies, including RBI.

It is a prerequisite under Section 13(2) that only after an account is declared as W.A. 1584/2020 7 NPA to be proceeded against by issuance of demand notice. In the instant case, RBI, being the regulatory body, has

20 W.P.(C)No.18513/2021 issued guidelines through notifications by declaring moratorium after 29.02.2020 and the respondent bank, in violation, has proceeded to issue demand notice after declaring the account of the appellants as NPA on 01.04.2020. In spite of the above factual and legal position, writ court has dismissed the writ petition.

D. The proceedings initiated by the respondent bank to declare the account of the Appellants as NPA was without jurisdiction or authority which goes into the route of the matter warranting interference by this Court.

E. Writ court failed to appreciate the fact that in the instant case it is without any authority under law that the account of the appellants was declared as NPA.

The arbitrary conduct of the respondents in declaring the account as NPA and thereafter proceedings under the SARFAESI Act is against Article 14 of the Constitution of India guaranteeing equal protection of law and Article 21 of the Constitution of India F. There is absolutely no logic, reason or justification in subjecting the appellants to a lengthy proceedings and unnecessary harassment by relegating them to the alternative remedy after the respondent bank proceeds to the next step of issuing possession notice under Section 13(4), including publication of the same, at the cost of the appellants, when the undisputedly, impugned actions to declare the account as NPA itself is per se illegal and goes into the root of the matter warranting interference at the very moment.

G. The respondent Bank had earlier illegally carried out paper publication, after issuance of Exhibit-P2 notice in spite of the fact that the said notice got served on the appellants and other borrowers. Said paper publication was done not only against the borrowers, but also against two other sons of the 2nd appellant, and the intention of the respondent bank in proceeding

21 W.P.(C)No.18513/2021 with paper publication was merely to harass and coarse the appellants. The respondents should not be given an opportunity to proceed with any further steps, including carrying out the paper publication of the possession notice, when there is inherent lack of jurisdiction or authority to do so, and the proceedings itself are an abuse of process of law.

H. The learned single Judge proceeded to pass impugned Judgment arbitrarily & unreasonable manner without even considering the above compelling factors. Relying on the decision in Authorized Officer, State Bank of Travancore and another v. Mathew K.C. [(2018) 3 SCC 85), the appellants contended that the Hon'ble Supreme Court have clearly observed and recognized well accepted exceptions to the rule of alternative remedy, which includes a case wherein the statutory authority has not acted in accordance with provisions of the enactment in question and when such authority have acted in defiance of fundamental principles of judicial procedure.

I. Section 2(o) of the SARFAESI Act clearly stipulates that declaration of NPA by the banks or financial institutions

shall

based

the circulars/notifications issued by the regulators, including RBL. In the instant case, RBI is the regulator and Exhibit P15 to P18 were issued by RBL. When Exhibit P12 notice was served on the appellants, an objection was issued clearly mentioning about the above circulars/notifications of the RBI, but in spite of the same, a reply was issued, without considering or giving any worth to the above notifications. The very process adopted by the respondent bank, in declaring the account of the appellants as NPA, was put to challenge. When evidently the pre-requisite of proceedings under the SARFAESI Act was not complied, the initiation by the Bank warrants interference and in spite of the same, the writ petition

22 W.P.(C)No.18513/2021 suffered dismissal upon patently wrong and erroneous appreciation of the matter.” The Court proceeded to consider the issues raised and held as follows:- “17. The question which emerges for consideration is as to whether the learned single Judge has committed any jurisdictional error while dismissing the writ petition. It is true that contention was raised by the appellants in regard to the conduct on the part of the respondent bank in making the account of the appellants as Non Performing Asset. The grievance of the appellants is that the bank has not followed the guidelines and directives issued by the Reserve Bank of India in the matter of treating the account as Non Performing Asset. But, the fact remains that, consequent to the default on the part of the appellants to repay the loan amount to the bank, the bank proceeded against the appellants as per the provisions of the SARFAESI Act, 2002. Appellants were issued with notice under Section 13(2) of the Act, but instead of the representation to the notice being adjudicated, the appellants have approached the writ court. In fact, the bank is at liberty to entertain a representation as is prescribed under Section 13(3A) of the SARFAESI Act, 2002 and consider the case of the appellants. When a statutory prescription is provided under law, to tackle a particular situation, the aggrieved person should have resorted to the remedy provided under the statute.

In our view, the contentions put forth in the writ petition that the bank has not followed the circulars and guidelines issued by the Reserve Bank of India was a subject matter that should have been raised by the appellants in a suitable representation, as provided under the statute. Section 13 of the SARFAESI Act, 2002 reads thus:

xxx xxx xxx xxx xxx 18. Reading of Section 13 of the Act, 2002 makes it categorically clear that the Parliament have provided a scheme thereunder, enabling an aggrieved person to ventilate his grievances by resorting to the procedure prescribed thereunder. Even assuming that a representation is submitted

23 W.P.(C)No.18513/2021 by the appellants to the respondent bank and the bank has not considered the same, in accordance with law, a remedy is provided under Section 17 of the act 2002 to the appellants to proceed against the bank by filing a suitable application before the Debt Recovery Tribunal.

19. Appellants did not care to resort to the remedy provided under law. When an amount due under a loan is not paid by a loanee, the bank is entitled to resort to the statutory remedy available to it as per the provisions of the SARFAESI Act, 2002.

20. Grievance of the appellants is that the respondent bank is not entitled to proceed against them, since the conduct on the part of the bank in converting the account of the appellants as Non Performing Asset, is not in accordance with the RBI guidelines. According to us, as stated above, it was a subject matter ought to have been pointed out by the appellants before the bank itself, since the statute prescribes a modality enabling a party to make suitable representation. Therefore, the proceedings initiated by the bank squarely comes under the procedure contemplated under Section 13 of the SARFAESI Act, 2002 and we have doubt in our mind to say that the appellants have a clear remedy as is statutorily prescribed under the act 2002.

21. The question as regards the action initiated by the respondent bank illegally can be raised by the appellants before the Debt Recovery Tribunal at the appropriate time, as is prescribed under law, and the Tribunal is vested with ample powers to consider such aspects, regarding the loan account maintained by an aggrieved person with a bank, the conduct on the part of the bank in making the account a Non Performing Asset and the failure on the part of the bank to follow the Reserve Bank guidelines. That apart, there is a clear remedy of appeal provided under the SARFAESI Act, 2002, if aggrieved, on any order passed by the Debt Recovery Tribunal, which thus means, the statute has provided a clear mechanism to tackle all and any situations of an aggrieved person under law, and therefore, a writ court would be slow in interfering with the action initiated by the bank, especially due to the fact

24 W.P.(C)No.18513/2021 that, the Act, 2002 was introduced with the avowed object of speedy recovery of amounts, without unnecessary interference of courts.

22. If that be so, we have no hesitation to hold that the appellants have not made out a case for interference with the impugned proceedings initiated by the bank against the appellants in a writ proceeding. So also, the position enumerated by us is well settled in law and bearing in mind the proposition of law laid down by the Hon'ble Apex Court in its various judgments, we do not think the facts and circumstances put forth by the appellants impress us to entertain the writ petition, as there is no legal infirmities persuading us to do so exercising the power of discretion conferred on us under Article 226 of the Constitution of India.” In the light of the above categoric findings of a Division Bench of this Court, the other prayers sought for also cannot be granted.

15.

The petitioners have deposited an amount of Rs. 1.5 Crores in a no-lien account with the respondent Bank, pursuant to the interim order dated 17.08.2022. The petitioners have filed I.A No 1 of 2023 seeking a direction to the respondent Bank to return that amount forthwith. I am afraid that such a direction cannot be issued in the facts and circumstances of this case. This case was admitted on 09.09.2021. The proceedings against the petitioners have been stayed by this Court through an order dated 09.09.2021. That stay continues till date. The learned counsel for the respondent bank has submitted that the present liabilities are in excess of the value of the securities available with the Bank. This is stated to be on account of the stay granted by this Court. It is fundamental that the act of

25 W.P.(C)No.18513/2021 Court should prejudice none- “actus curiae neminem gravabit”. Therefore, I am not inclined to direct the repayment of the amount presently. The amount shall remain in the no-lien account. It shall be adjusted against the loan liability (at the option of the petitioner) or against payment under any condition that may be imposed in any interim order of the Debt Recovery Tribunal. If the petitioner does not opt for adjustment of the amount against the loan liability, the amount shall be adjusted only in terms of any order that may be issued by the Tribunal, as and when proceedings are initiated by the petitioner under Section 17 of the SARFAESI Act.

The writ petition fails and will stand dismissed.

Sd/- GOPINATH P.

JUDGE acd

26 W.P.(C)No.18513/2021 APPENDIX OF WP(C) 18513/2021 PETITIONER EXHIBITS Exhibit P1 A TRUE COPY OF THE GST REGISTRATION CERTIFICATE NO. 32AADCP69110G1ZQ ISSUED TO 1ST PETITIONER COMPANY.

Exhibit P2 A TRUE COPY OF THE LOAN AGREEMENT DATED 30.09.2019 BETWEEN THE PETITIONER COMPANY AND THE 4TH RESPONDENT BANK.

Exhibit P3 A TRUE CPY OF THE RBI NOTIFICATION NO.

RBI/2019-20/186 DATED 27.03.2020.

Exhibit P4 A TRUE COPY OF THE NOTIFICATION NO. RBI/2019- 20/244 DATED 23.05.2020.

Exhibit P5 A TRUE COPY OF THE NOTIFICATION OF THE RBI NO.

RBI/2020-21/17 DATED 06.08.2020.

Exhibit P6 A TRUE COPY OF THE REPORT OF THE EXPERT COMMITTEE ON RESOLUTION FRAMEWORK FOR COVID-19 RELATED STRESS DATED 04.09.2020.

Exhibit P7 A TRUE COPY OF THE NOTIFICATION NO. RBI/2020- 21/34 07.09.2020 ISSUED BY THE RESERVE BANK OF INDIA ACCEPTING THE KAMATH COMMITTEE REPORT.

Exhibit P8 A TRUE COPY OF THE E-MAIL DATED 30.08.2020 SENT TO 5TH RESPONDENT BANK.

Exhibit P9 A TRUE COPY OF THE APPLICATION DATED 28.10.2020 SUBMITTED BY THE PETITIONER COMPANY TO THE 6TH RESPONDENT.

Exhibit P10 A TRUE COPY OF THE E-MAIL LETTTER DATED 10.02.2021, SENT BY THE PETITIONER COMPANY TO THE E-MAIL ID OF THE RELATIONSHIP MANAGER OF THE 4TH RESPONDENT BANK.

Exhibit P11 A TRUE COPY OF E MAIL DATED 30.03.2021 FROM PETITIONER COMPANY TO THE MANAGER STANDARD CHARTERED BANK, THE 6TH RESPONDENT.

Exhibit P12 A TRUE COPY OF THE E-MAIL DATED 31.03.2021 FROM 5TH RESPONDENT TO THE PETITIONER.

Exhibit P13 A TRUE COPY OF THE E-MAIL LETTER DATED 05.04.2021 ADDRESSED TO THE 6TH RESPONDENT.

Exhibit P14 A TRUE COPY OF THE E-MAIL COMMUNICATION DATED

27 W.P.(C)No.18513/2021 13.04.2021 ADDRESSED TO 6TH RESPONDENT AND E- MAILED TO THE 5TH RESPONDENT, WHO IS THE GRIEVANCES REDRESSAL CELL.

Exhibit P15 A TRUE COPY OF THE E-MAIL DATED 17.05.2021 FROM 5TH RESPONDENT OFFICE.

Exhibit P16 A TRUE COPY OF THE E-MAIL LETTER DATED 18.05.2021 FORWARDED BY THE PETITIONER COMPANY TO THE 5TH RESPONDENT.

Exhibit P17 A TRUE COPY OF THE REPLY E-MAIL ISSUED FROM THE 5TH RESPONDENT OFFICER DATED 16.06.2021.

Exhibit P18 A TRUE COPY OF THE NOTICE ISSUED BY THE 4TH RESPONDENT BANK DATED 05.05.2021 TO THE PETITOINERS AND OTHER CO-OBLIGANTS.

Exhibit P19 A TRUE COPY OF THE REPLY DATED 05.07.2021 SUBMITTED BY THE PETITIONER TO THE AUTHORIZED OFFICER TO THE 4TH RESPONDENT BANK.

Exhibit P20 A TRUE COPY OF THE REPLY FROM THE 7TH RESPONDENT DATED 23.07.2021 ISSUED TO THE 2ND PETITIONER.

Exhibit P21 A TRUE COPY OF THE NOTIFICATION OF THE RBI NO.

RBI/2021-22/32 DATED 05.05.2021.

Exhibit P22 A TRUE COPY OF THE E-MAIL COMMUNICATION ISSUED BY THE PETITIONERS T THE 5TH RESPONDENT DATED 31.05.2021.

Exhibit P23 A TRUE COPY OF THE COMPLAINT DATED 02.08.2021 FILED BEFORE THE BANKING OMBUDSMAN BY THE PETITIONER.

Exhibit P24 A TRUE COPY OF THE COMMUNICATION ISSUED BY THE OFFICE OF THE BANKING OMBUDSMAN DATED 18.08.2021 AS PER ORDER OBO(T) CMS 3628/21-22 TO THE 2ND PETITIONER.

Exhibit P25 A TRUE COPY OF THE REPRESENTATION DATED 20.08.2021, SUBMITTED BY THE PETITIONER TO THE BRANCH MANAGER/THE 6TH RESPONDENT.

RESPONDENT EXHIBITS Exhibit R4(A) TRUE COPY OF CIRCULAR OF RBI BEARING NO.

DOR.STR.REC.4/21.04.048/2021-22 DATED 07-04- 2021 ISSUED BY RESERVE BANK OF INDIA, RESPONDENT NO.2

28 W.P.(C)No.18513/2021 Exhibit R4(B) TRUE COPY OF THE REPLY DATED 02-08-2021 SUBMITTED BY THE PETITIONER TO THE RESPONDENT BANK.

Exhibit R4(C) TRUE COPY OF THE REPLY OF THE RESPONDENT BANK DATED 24-08-2021 SENT TO THE PETITIONER.

PETITIONER EXHIBITS Exhibit P26 A TRUE COPY OF THE LETTER REF.NO.1243/NCGTC/ECLGS DATED 04/10/2021 ISSUED BY THE CEO NCGTC TO THE FINANCIAL INSTITUTIONS AND BANKING INSTITUTIONS.

Exhibit P27 A TRUE COPY OF THE CIRCULAR NO.RBI2015-16/338 DATED 17/03/2016 ALONG WITH ITS ANNEX ADDRESSED TO ALL SCHEDULED COMMERCIAL BANKS ISSUED BY THE RESERVE BANK OF INDIA.

Exhibit P28 A TRUE COPY OF THE OTS PROPOSAL REPRESENTATION SUBMITTED BY THE 2ND PETITIONER DATED 25-08- 2022 BEFORE THE MANAGER STANDARD CHARTERED BANK Exhibit P29 . A TRUE COPY OF THE LETTER ISSUED BY THE AUTHORIZED SIGNATORY OF THE STANDARD CHARTERED BANK Exhibit P30 A TRUE COPY OF THE LETTER DATED 27-09-2022 SUBMITTED BY THE PETITIONER TO THE MANAGER STANDARD CHARTERED BANK Exhibit P31 A TRUE COPY OF THE LETTER DATED 17-10-2022 ISSUED BY THE AUTHORIZED OFFICER OF THE STANDARD CHARTED BANK TO THE PETITIONER