The duty of banks to act fairly and in good faith, the requirement of financial discipline, and the availability of an efficacious remedy through the Debts Recovery Tribunal.

Tarun Agarwala, J.

The petitioner no.1 is a partnership firm in which petitioner nos.2, 3 and 4 are partners. Petitioner no.5 took a loan from Oriental Bank of Commerce against collateral securities. Petitioner no.5 wanted additional bank limits for a short period for which purpose, petitioner no.5 approached petitioner no.1 and its partners to provide collateral security. The partners of petitioner no.1 apparently agreed to provide additional security and bank guarantees to petitioner no.5. Accordingly, in 2011 the cash credit limit of petitioner no.5 was enhanced upon mortgaging the property of petitioner no.1 situate at B-60, Sector 57, Noida and upon furnishing guarantees by its partners. In 2012, one of the partners of petitioner no.1 died. The surviving partners of petitioner no.1 decided to wind up the firm and requested petitioner no.5 to return their guarantees and release the mortgage on the property. Petitioner no.5 accordingly, wrote a letter to the Oriental Bank of Commerce on 22nd June, 2015 requesting for substitution of the mortgaged property and for release of the property of petitioner no.1.

2. The Oriental Bank of Commerce accepted in principle the substitution of the properties vide their letter dated 29th June, 2015 contending that the substitution of the property could be substituted by an equal amount of immovable property as well as FDRs in the name of Directors/guarantors apart from fulfilment of other conditions. Based on the tentative approval granted by the Oriental Bank of Commerce, petitioner no.5 provided the alternate properties for mortgage. The Oriental Bank of Commerce vide their letter dated 29th June, 2015 directed the petitioners to take concurrence from the Canara Bank since they also held a parri passu charge over the collateral securities submitted by petitioner nos.1, 2, 3 and 4. Petitioners, accordingly, approached the Canara Bank for a no objection certificate. In the consortium meeting of the banks held on 8th July, the Canara Bank informed that the proposal has been sent to the higher authorities. By a letter dated 4th September, 2015, the Oriental Bank of Commerce informed Canara Bank that they have created equitable mortgage on the substituted properties given by petitioner no.5 and requested Canara bank to grant a no objection certificate. In the consortium meeting held on 4th November, 2015, the issue of substitution of the mortgaged property was taken into consideration. The Canara bank informed that the account of petitioner no.5 with their bank had been declared a Non Performing Asset (NPA) in July 2015 and that the borrower was required to deposit the over due amount and regularise the account and only thereafter, the request for substitution of the property be considered and a no objection certificate be issued. The Oriental Bank of Commerce consequently, by a letter dated 17th November, 2015 informed the borrower, namely, petitioner no.5 that they should clear the over due account not only of the Canara bank but also with their bank and regularise the account before considering the request for substitution of the properties. Since nothing was done by the petitioners', the Oriental Bank of Commerce vide letter dated 14th December, 2015 rejected the request for substitution of the properties.

3. The Oriental Bank of Commerce held that the petitioner no.5 was not maintaining financial discipline and the account of the company was drifting towards NPA and, consequently, in the changed circumstances, the bank was not bound to honour the concurrence given earlier for substitution of the properties. The petitioner, being aggrieved by the action of the bank vide their letters dated 17th November, 2015, 14th December, 2015 has filed the present writ petition for its quashing as well as for a writ of mandamus commanding the respondents to release the mortgaged property of petitioner no.1. The petitioners has also prayed for the quashing of the notice dated 8th January, 2016