M/S Jnana Sarovara vs The Housing And Urban
2021 Latest Caselaw 3560 Kant

                           1

  IN THE HIGH COURT OF KARNATAKA, BENGALURU

    DATED THIS THE 29TH DAY OF OCTOBER, 2021

                        BEFORE

       THE HON'BLE MR. JUSTICE KRISHNA S.DIXIT

       WRIT PETITION NO.33016 OF 2011(GM-RES)
BETWEEN:

M/S JNANA SAROVARA
EDUCATIONAL TRUST(JSET)
NO. 580, 26TH MAIN, 2ND STAGE,
KHILLA MOHALLA, J.P. NAGAR,
MYSORE,
REPRESENTED BY ITS CHAIRMAN
SRI. SUDHAKAR SHETTY
S/O SRI. SANJEEV SHETTY,
AGED 55 YEARS.
                                          ...PETITIONER
(BY SRI. GANAPATHI BHAT, ADVOCATE A/W
    SRI. UDAYA HOLLA, SENIOR COUNSEL)

AND:

THE HOUSING AND URBAN
DEVELOPMENT CORPORATION LTD.
A COMPANY INCORPORATED AND
REGISTRED UNDER THE PROVISIONS
OF THE COMPANIES ACT 1956,
HAVING ITS REGISTERED OFFICE
AT "HUDCO BHAVAN",
INDIA HABITAT CENTRE COMPLEX,
LODHI ROAD, NEW DELHI,
AND ITS LOCAL REGIONAL OFFICE
AT MANIPAL CENTRE, NORTH BLOCK,
7TH FLOOR, UNIT NOS.703 & 704, NO.47,
DECKINSON ROAD,
BANGALORE - 560 044.
REPRESENTED BY ITS MANAGER.
                                         ... RESPONDENT
(BY SRI. VARADARAJ R HAVALDAR, A/WITH
    SRI. S.G.BHAGAVAN, SENIOR COUNSEL)

     THIS WRIT PETITION IS FILED UNDER ARTICLES 226
AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO
DIRECT THE RESPONDENT TO CONSIDER THE OTS SCHEME
AS AGREED IN THE LETTER DATED 15.07.2011 WRITTEN BY
                               2

THE RESPONDENT AT ANNEXURE AB AND ISSUE FINAL
CONFIRMATION LETTER FOR ACCEPTING THE ONE TIME
SETTLEMENT SCHEME (OTS).

     THIS PETITION COMING ON FOR ORDERS THIS DAY,
THE COURT MADE THE FOLLOWING:-

                        ORDER

Petitioner a borrower whose OTS proposal has been

rejected on the sole ground of the value of secured assets

being higher than the loan outstanding, is knocking at the

doors of Writ Court for assailing the same; this is a decade

old legal battle between the borrower and the lender which

apparently is an instrumentality of the State u/a 12 of the

Constitution; it has the following fact matrix:

(a) Petitioner is a registered educational trust;

respondent happens to be a Govt. Company as defined u/s

617 of the erstwhile Companies Act, 1956; it is Public

Sector Undertaking; initially, petitioner got sanctioned

from the respondent, a loan of Rs.4.60 crore for the

construction of a residential school vide Sanction Letter

dated 23.5.2003; later, by a subsequent Sanction Letter

dated 2.7.2004, an addl. loan of Rs.4 crore was availed;

both the loans are secured by the mortgage of properties.

(b) The debt repayment having suffered defaults,

the petitioner made the request for restructuring of the

loan; to show its bonafide, some amount was remitted too;

the request for restructuring of the loan or for waiving of

compound interest in the light of pleaded Global Recession

was not acceded to by the respondent; ultimately, DRT

proceedings were initiated in O.A.No.244/2009; this was

followed by the SARFAESI proceedings, as well.

(c) Petitioner's W.P.No.1858/2009 (GM-DRT) was

disposed off by a Co-ordinate Bench of this Court on

24.3.2010 along with respondent's W.P.No.1361/2009

directing the respondent to consider petitioner's request for

rescheduling of the loan in terms of RBI Guidelines if the

petitioner deposited Rs.3,00,00,000/- within six weeks the

matter was carried in W.A.No.1525/2010 which came to

be disposed off by the Division Bench on 23.04.2010

granting some more time for making the said deposit;

petitioner in compliance paid Rs.3,00,00,000/-; however,

petitioner's request inter alia for OTS was turned down on

28.9.2011 on the ground that the security value was

higher than the loan outstanding; aggrieved thereby, the

petitioner is knocking at the doors of the Writ Court for

quashing of the said letter dated 28.9.2011 and for a

direction to the respondent to consider its OTS

representation dated 15.7.2001.

(d) After service of notice, the respondent having

entered appearance through its Panel Counsel, resists the

Writ Petition by filing the Statement of Objections;

petitioner has filed its Rejoinder to the same; learned

counsel for the petitioner seeks to falter the action of the

respondent, in law; he takes the court through a bunch of

correspondence that happened between the parties, in

support of his submission; the Panel Counsel for the

respondent per contra contends in support of the

impugned communication whereby, the request for

restructuring is turned down; he opposes issuance of any

direction to the respondent, as sought for by the petitioner.

2. Having heard the learned counsel for the

parties and having perused the Petition Papers, this Court

is inclined to grant indulgence in the matter as under and

for the following reasons:

(a) Petitioner, as already mentioned above runs a

residential school of some repute emerges from the

material on records; the respondent has lent the money

with which petitioner has constructed the building for the

residential school and for its infrastructural development;

the repayment of loan is secured by mortgage of the

property; it is a valuable property, is also true; thus, the

loan is availed for educational purpose and not for some

business adventures, is true; Article 21A of the

Constitution guarantees Fundamental Right to Primary

Education and the corresponding duty rests on the State;

since the State is not in a position to cater to the

educational needs of the communities, the private

educational institutions are founded; they are regulated by

the law like the Karnataka Education Act, 1983, etc; in the

matter of loans granted by instrumentalities of State u/a

12 like the respondent, law needs to recognize some

principle & policy difference between a

commercial/business loan and the loan availed for

educational purpose; in fact, the respondent does not carry

on the banking business pure & simple, unlike the

Commercial Banks; the impugned decision of the

respondent does not bear this difference; it treats

petitioner's loan on par with a commercial/business loan;;

thus, there is an error apparent on the face of the record.

(b) The right to restructuring of the loan and the

right to One Time Settlement (OTS) avails under the Extant

RBI Guidelines and such a right is justiciable vide Apex

Court decisions in M/s Devidayal Castings Pvt. Ltd. Vs.

Haryana Financial Corporation, (2016) 16 SCC OnLine SC

1134; there was a Global Recession during the relevant

period and the debts of many borrowers remained unpaid

or defaulted, cannot be much disputed; courts have

granted reprieve to the defaulting borrowers who were

otherwise scrupulous and have shown bonafide; at least,

this reprieve consisted of extension of the OTS timeline

vide M/s Kemprode Pvt. Ltd Vs. The Recovery Officer, DRT

& Another in W.P.No.3749/2007 disposed off on 1.8.2008;

similarly, a lenient approach is shown by the Division

Bench of this Court in more or less a comparable matter in

M/s Hotel Vandana Palace Vs. The Authorized Officer &

Another, 2011 SCC OnLine KAR 3928; the DB granted

reprieve to the borrower inter alia because of breach of fair

standard procedure; these Rulings were already there and

therefore, the respondent ought to have adverted to the

same; this having not been done, the impugned action of

the respondent is infected with yet another legal infirmity.

(c) The respondent in its impugned letter dated

28.9.2011 has stated that the value of the security interest

is very high and therefore, it did not favour the OTS

proposal of the petitioner; the relevant text of the letter is

reproduced below:

"Please refer to your above referred letters wherein you have requested for extending OTS in respect of the cited scheme. We have been directed to inform you that the OTS is not agreed to because the value of the properties mortgaged for the loan is much higher than the outstanding dues to HUDCO..."

The learned Panel Counsel appearing for the respondent

though has filed a bulky Statement of Objections with

several documents, is not in a position to show that the

higher value of the security qua the quantum of loan

accruing due per se can be a ground for rejecting the OTS

proposal; this apart, the stand of the respondent is liable

to suffer constructive res judicata since that ground was

not pressed into service in the earlier rounds of litigation

between the parties i.e., W.P.No.1858/2009 &

W.P.No.1361/2009 and W.A.No.1525/2010, wherein the

petitioner had earned some reprieve.

(d) The opinion of the respondent that the market

value of the security interest is much higher, again is

defective; in fact, Sri.H.D.Vasudev who happened to be a

Chartered Engineer & Government approved valuer has

worked out the distress value of the mortgaged property at

Rs.14,36,18,727/- which is a little less than the

outstanding due of Rs.15,84,21,000/-; this has been done

on the basis of the extant Guideline Values prescribed by

the Government; the respondent has got the valuation of

the security interest on the basis of the Guideline Values

that do not relate to the area in which the mortgaged

properties are situate; this is yet another error apparent on

the face of the record to the detriment of the petitioner.

(e) The conduct of the respondent falls short of

Fair Procedure Standards; the reason on which the OTS

proposal is turned down was available to respondent for

opposing the petitioner's case in earlier round of litigation;

however, that was not notified to the learned Single Judge

nor to the Division Bench in petitioner's

W.A.No.1525/2010 wherein extension for making the

deposit of Rs.3,00,00,000/- was accorded; the petitioner

made the said deposit which is evidenced by the

acknowledgement dated 28.6.2011; in all, acting on the

stand of the respondent, petitioner proposed to pay

Rs.1174.55 lakh by way of OTS as against the outstanding

balance of Rs.1582.94 lakh; the OTS quantification was

made acting on the respondent's letter dated 15.7.2011;

petitioner had deposited Rs.58 lakh vide Axis Bank Cheque

dated 30.6.2011, in compliance with the pre-condition of

depositing 5% of the OTS amount; in all, petitioner has

deposited a sum of Rs.10,90,32,100/-; the balance of OTS

amount payable is only Rs.84,23,000/-; the respondent

appears to have kept in view the amount proposed in OTS

in forming an opinion that the value of the security interest

is much higher; thus, the impugned order has

accumulated errors, warranting indulgence of this court.

(f) It is not that the petitioner is not at all at the

fault; invariably in matters like this, some fault lies with

the borrowers too; whether the gravity of the fault is so

high as to deny the benefit of statutory OTS schemes,

ought to have been examined by the respondent, keeping

in view all the attending circumstances; as already

mentioned above, the respondent happens to be a Govt.

Company and it does not undertake the commercial

banking unlike the regular banks; the State and its

instrumentalities are expected to conduct themselves as

the model persons in their dealing with the citizens; their

actions have to be just & reasonable; after all, "justice as

fairness" has to animate their actions; the officials of the

respondent cannot act as the East India Company of the

by-gone era, ours being a Welfare State; balancing of the

competing equities between the parties warrants that the

petitioner should pay another sum quantified at 10% of the

OTS amount of Rs.11,74,000,55/-; this done, will put into

the purse of the respondent an addl. sum of

Rs.1,17,40,005/-; this is in addition to what the petitioner

is liable to pay as the balance of the OTS sum and the

interest accruing at the agreed rate thereon within a

reasonable period; however, if the amount already

deposited by the petitioner exceeds this computation, the

excess needs to be refunded.

(g) It needs to be stated that ordinarily a Writ

Court does not much interfere in matters pertaining to

banking business since they involve professional prudence

which as an ideal should be respected; Courts ordinarily

are not well equipped to adjudge the right or wrong of the

exercise of such prudence; it is a matter that essentially

lies in the domain of the lender; however, at least two

exceptions are recognized to this general norm: (i) where

matter is governed by Reprieve Schemes having statutory

flavour such as OTS Schemes, & (ii) the decision of the

lender-bank which is an instrumentality of the State, as it

is here, is so unreasonable & unfair as to suffer

invalidation on that very ground; if respondent's action is

adjudged on these grounds, it only warrants invocation of

the Biblical quote: "Thou art weighed in the balances, and

art found wanting".

In the above circumstances, I make the following:

ORDER

(i) This Writ Petition succeeds in part; a Writ of

Certiorari issues quashing the impugned letter. A Writ of

Mandamus issues to the respondent to consider & accept

petitioner's OTS proposal in a sum of Rs.11,74,000,55/-

(Rupees Eleven Crore Seventy Four Lakh & Fifty Five) only,

forthwith.

(ii) Petitioner shall make good the deficit of the

OTS amount, if any, along with interest at the agreed rate,

within a period of four weeks and shall also pay to the

respondent an addl. sum of Rs.1,17,40,005/- (Rupees One

Crore Seventeen Lakh Forty Thousand & Five) only, within

a period of eight weeks, from the date the respondent

communicates the acceptance of OTS proposal.

(iii) All collateral cases and proceedings pending

before any Court or Tribunal essentially concerning the

same subject matter shall stand closed.

(iv) If the amount already deposited by the

petitioner towards the loan account in question exceeds

the amount payable in terms of this order, the excess part

shall be refunded to him without brooking any delay.

(v) If the petitioner fails to avail the benefit granted

in terms of this judgment, the impugned letter now

quashed shall revive on it's own as phoenix and that the

parties shall stand relegated to their earlier position and

consequently, respondent shall be at liberty to take all

coercive action for the repayment of the loan de hors OTS

proposal.

Costs made easy.

Sd/-

JUDGE

Snb/Cbc/Bsv