The Karnataka High Court recently held that the response of a bank to the requirement of its borrower made during the course of its commercial dealings cannot be equated to the order of statutory authority. Single Judge Justice Krishna S Dixit held that the principles applicable for judicial review of a bank’s response to its customers from the ones applicable to the review of actions of statutory functionaries.
In the present case, the loan account of the petitioner company, with South Indian Bank was declared as a Non- Performing Asset in December 2019. Owing to this, the respondent bank took coercive recovery proceedings in terms of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
The petitioner’s request for financial assistance under Credit Guarantee Scheme for Subordinate Debt was rejected via simple communication, which prompted the present petition before the High Court to challenge the same.
Counsel of the Petitioner
It was further contended that since the bank is an instrument of the State, under Article 21of the Constitution of India, ought to state reasons in the communication for rejecting petitioner’s
request for financial assistance under the Scheme.
Observation of the Court
The Court was of the opinion that the bank is not a statutory body and hence did not find the argument meritorious. Further, the Court said that the transactions between a banker and the borrower have a contractual relationship even if the lender bank happens to be an instrumentality of “State” under Article 21 of the Constitution of India.
“The Writ Courts neither have the means nor the knowledge to re-evaluate the “prudent decisions” of the Bank that are made in the course of commercial transactions; after all, the scope of judicial review of “Bankers Decision” is too restrictive as observed by a Division Bench of this Court in Manne Gururprasad v. M/s Pavaman Ispat Pvt Ltd.”, the Court observed.
The Court further held that the banks taking decisions not to sanction certain financial requests
cannot be found fault as in the present times two dozen public sector banks have been shut down or merged with other banks for the very reason that they have incurred huge losses because of lending schemes.
“The individual benefit of a customer under the scheme cannot outweigh the public trust which all banks are saddled with; an argument to the contrary may imperil the interest of other valuable customers of the bank, which is not a desirable thing to happen”, the Court opined.
In view of the same, the Court rejected the petition.
Case Details
Before: Karnataka High Court
Case Title: Traegen Systems v. South Indian Bank
Coram: Hon’ble Mr. Justice Krishna S Dixit
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