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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
AKIL KURESHI, J.B. PARDIWALA, JJ.
IONIC METALLIKS & 3 - Petitioner(s)
Versus
UNION OF INDIA & 3 - Respondent(s)
SPECIAL CIVIL APPLICATION NO. 645 of 2014 With SPECIAL CIVIL APPLICATION NO. 10120 of 2014
Decided on : 09/09/2014
Constitution of India, 1950 – Article 19 – Reserve Bank of India Act, 1934 – Banking Regulation Act, 1949 – Section 35A, read with sections 21 and 5 – Challenge in writ applications is to the legality and validity of a Master Circular issued by the Reserve Bank of India in respect of 'willful defaulter' and the notices were issued by the respective banks, calling upon the petitioners to show-cause as to why they should not be declared as willful defaulters in terms of the Reserve Bank of Indias Master Circular – Held, Reserve Bank of India was within its powers to issue the Master Circular relating to willful default and willful defaulters it is empowered to regulate banking system and certain regulatory functions have been assigned to it by provisions of Reserve Bank of India Act, 1934, and Banking Regulations Act, 1949 –Master Circular has been issued by Reserve Bank of India in public interest –Master Circular does not suffer from vice of impermissible delegation of legislative power – It confirms exactly to power granted – Master Circular has force of law and could be termed as statutory circular –Application of maxim "nemo judex in causa sua" on part of petitioners on premise that bank itself will be judge in its own cause is completely misplaced –if court finds action to be tainted with malafide or bias, then same could always be condemned and set at right – On mere apprehension of misuse of such provision, otherwise valid statute, should not be struck down or condemned –Mere possibility or likelihood of abuse of power does not make provision ultra vires or bad in law –Master Circular does not impose unreasonable restriction upon promoters/entrepreneurs, being violative of Article 19(1)(g) of Constitution of India as it has effect of debarring them from availing of any additional facilities for floating new venture –Master Circular, so far as it is sought to be made applicable to all directors of company, is arbitrary and unreasonable –Court declare that part of Master Circular as ultra vires the powers of Reserve Bank of India and is violative of Article 19(1)(g) of Constitution of India – However, these observations will not apply to promoters/ entrepreneurs –Merely because company is carrying on banking business, it cannot per se become public authority nor can be considered discharging public functions –Show-cause notices are quashed and set-aside – Petition Partly Allowed
J.B. PARDIWALA, J.
1. Since the legal issues raised in both the writ applications are more or less the same, those were heard together and are being disposed of by this common judgment.
2. The challenge in both the above captioned writ applications is to the legality and validity of a Master Circular dated 2nd July 2012 issued by the Reserve Bank of India in respect of 'willful defaulter' and the notices were issued by the respective banks, calling upon the petitioners to show-cause as to why they should not be declared as willful defaulters in terms of the Reserve Bank of India’s Master Circular.
Special Civil Application No.645 of 2014 :
3. The petitioner no.1 is a proprietary firm. The petitioner no.2 is a company registered under the Indian Companies Act, 1956, having its Registered Office within the State of Gujarat. The petitioner no.3 is the Director of the petitioner no.2 Company and the petitioner no.4 is the Guarantor and also a Director of the Petitioner no.2 Company.
4. The petitioners availed of a loan facility from the respondent no.2 Punjab National Bank. The respondent no.2 Bank noticed that the loan account of the petitioners was a Non-Performing Asset (NPA) since 30th June 2012 with the outstanding of Rs.1027 lac (as on the date of the NPA) including the interest at the applicable rate.
5. Despite regular reminders from the bank for payment of the dues, no steps were taken by the petitioners in that regard. Therefore, the respondent no.2 Bank issued a show-cause notice dated 19th February 2013 followed by a second show-cause notice dated 14th May 2013 and a final notice dated 8th January 2014 on the premise that the petitioners had defaulted in repayment of the loan amount and the funds borrowed from the Bank were siphoned off and not used for the purpose for which the amount of the loan was disbursed, for which the petitioners were called upon to show-cause as to why they should not be declared as 'willful defaulters' in terms of the RBI Master Circular DBOD No.CID-BC.1/20.16.2003/2011-12.
6. Such action of the Bank is the subject matter of challenge in the petition including a prayer to declare the RBI Master Circular dated 2nd July 2012 referred to above as ultra vires the Constitution of India and/or the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Act No.54 of 2002) and/or the Reserve Bank of India Act, 1934 and/or the Banking Regulation Act, 1949 and/or the Recovery of Debts Due to Bank and Financial Institutions Act, 1993 and/or the Credit Information Companies (Regulation) Act, 2005 and/or the Indian Contract Act.
Special Civil Application No.10120 of 2014 :
7. The petitioners availed of the facility of the Home Saver Account vide sanction letter dated 30th September 2010 to the tune of Rs.3,45,87,900/-in Account No.48111724 from the respondent no.2 – Standard Chartered Bank. The petitioners availed one more facility of the Home Saver Account by sanction letter dated 30th September 2010 of Rs.1,45,12,100/-vide Account No.48134899 from the respondent no.2 Standard Chartered Bank. The Account No.48134899 was declared as NPA on 1st December 2013 whereas the Account No.48111724 was declared as NPA on 10th January 2013.
8. On 3rd April 2014, the petitioners addressed a letter to the respondent no.2 Bank requesting for a closure of both the accounts.
9. On 20th May 2014, the petitioners were served with the notices under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
10. On 20th June 2014, the petitioners were served with the impugned notices under the RBI Circular DBOD No.CID.BC.1/20.16.2003/2011-12 dated 1st July 2012, calling upon them to show-cause as to why they should not be declared as the willful defaulters. The petitioners replied to the said notices on 1st July 2014.
11. In the aforesaid background, the petitioners have prayed to declare the RBI Master Circ
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