Karnataka High Court

The Governor vs Velankani Information Systems ... on 5 January, 2022

Bench: S.Sujatha, P.Krishna Bhat

     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

        DATED THIS THE 5TH DAY OF JANUARY, 2022

                         PRESENT

           THE HON'BLE MRS.JUSTICE S.SUJATHA

                              AND

        THE HON'BLE MR. JUSTICE P.KRISHNA BHAT

               W.A.No.625/2020 (GM - RES)

BETWEEN :

THE GOVERNOR
RESERVE BANK OF INDIA
CENTRAL OFFICE BUILDING, 18TH FLOOR,
SHAHID BHAGAT SING ROAD,
MUMBAI-400001,
REP BY ITS ASSISTANT GENERAL MANAGER
Mr. S.A.RAVISHANKAR.                          ...APPELLANT

           (BY SRI R.V.S.NAIK, SENIOR COUNSEL A/W
                     SRI V.VINAY GIRI, ADV.)

AND :

1.      VELANKANI INFORMATION SYSTEMS LIMITED
        No.43, ELECTRONICS CITY PHASE 1
        DODDATHOGURU VILLAGE
        BENGALURU-560 100
        REP BY ITS MANAGING DIRECTOR
        Mr. KIRON D. SHAH

2.      SECRETARY
        MINISTRY OF HOME AFFAIRS
        GOVERNMENT OF INDIA
        NORTH BLOCK, NEW DELHI-110 001

3.      SECRETARY
        MINISTRY OF FINANCE
                           -2-



     GOVERNMENT OF INDIA,
     NORTH BLOCK, NEW DELHI-110 001

4.   STATE OF KARNATAKA
     VIDHANA SOUDHA
     BENGLAURU-560001, KARNATAKA
     BY ITS CHIEF SECRETARY

5.   HDFC BANK LIMITED
     SALCO CENTRE, RICHMOND ROAD,
     BENGALURU-560 025
     REP BY BOARD OF DIRECTORS

6.   FEDERAL BANK LIMITED
     MARUTI ARCADE NO.7
     20TH MAIN ROAD, 7TH BLOCK,
     KORAMANGALA, BENGALURU-560 095
     REP BY BOARD OF DIRECTORS

7.   ADITYA BIRLA FINANCE LIMITED
     NO.1(78), STAR AVENUE, 6TH CROSS,
     VICTORIA LAYOUT, VICTORIA ROAD,
     BENGLAURU-560 025
     REP BY BOARD OF DIRECTORS           ...RESPONDENTS

          (BY SRI AJAY KUMAR M., ADV. FOR R-1;
           SRI KUMAR M.N., CGC FOR R-2 & R-3;
           SRI SHASHIKUMAR G.V., AGA FOR R-4;
            SRI H.N.VASUDEVAN, ADV. FOR R-5;
       SRI I.P.RAWLAY MUDDAPPA, ADV. FOR C/R-7;
 VIDE COURT ORDER DATED 17.11.2021 SERVICE OF NOTICE
                TO R-7 IS HELD SUFFICIENT;
 VIDE COURT ORDER DATED 17.11.2021 SERVICE OF NOTICE
                TO R-6 IS HELD SUFFICIENT.)

     THIS W.A. IS FILED UNDER SECTION 4 OF          THE
KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE       THE
IMPUGNED ORDER DATED 08.07.2020 PASSED BY           THE
LEARNED SINGLE JUDGE IN W.P.NO.6775/2020 (GM-RES)   AND
DISMISS W.P.NO.6775/2020 (GM-RES).

      THIS APPEAL COMING ON FOR ADMISSION, THIS DAY,
S. SUJATHA, J., DELIVERED THE FOLLOWING:
                            -3-



                    JUDGMENT

This is an intra Court appeal filed under Section 4

of the Karnataka High Court Act, 1961, challenging the

order dated 8.7.2020 passed in W.P.No.6775/2020.

2. Briefly stated the facts of the case are that,

respondent No.1 herein had availed the term loan

facilities from respondent Nos.5 to 7. Respondent No.1

herein claiming to be the owner and operator of Five

Star Hotel and Technology Park had approached the

writ Court by filing W.P.No.6775/2020 being aggrieved

by the rejection of its request for grant of moratorium by

lending institutions, namely respondent Nos.5 to 7 inter

alia seeking for a direction amongst others to the

appellant to enforce the Regulatory Covid 19 Package

dated 27.03.2020 announced by the Reserve Bank of

India (RBI) in letter and spirit, further seeking certain

consequential reliefs.

3. The learned Single Judge, after hearing the

learned counsel appearing for the parties accepting the

appellant's contention that Covid 19 package gave the

discretion to lending institutions insofar as to grant or

not grant a moratorium, proceeded to issue directions to

the appellant to monitor the implementation of Covid 19

package including verification of whether there are

board approved policies framed by each lender; the

banks to submit the board approved policies for

approval to the appellant; the appellant to approve such

policies, to verify if such board approved policies

contain objective criteria; the appellant to set up a

proper and effective grievance redressal forum for any

aggrieved borrower to approach on account of improper

or non-implementation of the policy and/or circular,

etc.

4. Aggrieved by the aforesaid directions, the

appellant is before this Court.

5. Sri.R.V.S.Naik, learned Senior Counsel

appearing for the appellant submits that the writ appeal

is confined only to the direction issued by the writ Court

in paragraph 26(i) pursuant to the observations made in

paragraphs 23.5 and 25.4 of the order impugned.

Learned Senior Counsel submitted that the said

observations/directions are contrary to the finding of

the Hon'ble Apex Court rendered in Small Scale

Industrial Manufacturers Association (Registered) v.

Union of India and others, reported in (2021) 8 SCC

511. Learned Senior Counsel further argued that RBI

can frame guidelines which serve as broad indicators for

lending institutions which have the authority and

discretion to make free independent assessments and

decisions based on the requirements of the borrowers

and the interest of its depositors. In that direction, the

Circular dated March 27, 2020 was issued. The learned

Single Judge erred in coming to a conclusion that a

right had been created in favour of respondent No.1 as a

borrower to avail a moratorium in view of the said

circular. The relief now extended by the learned Single

Judge was not which was sought nor contemplated by

the parties to the proceedings. The learned Single

Judge committed an error in exceeding the jurisdiction,

in issuing the direction to the appellant herein as per

paragraphs 26(i) read with 23.5 and 25.4.

6. Learned counsel appearing for respondent

No.1 fairly submits that no such relief was sought by

the original petitioner inasmuch as the direction now

issued by the learned Single Judge to the appellant. He

further submits that he has no objection to set aside the

said observations/directions in the light of the judgment

of the Hon'ble Apex Court in Small Scale Industrial

Manufacturers Association (Registered), referred to

supra.

7. Learned counsel appearing for the State

Government and Union of India also support the

arguments advanced by the learned counsel appearing

for the appellant.

8. We have carefully considered the rival

submissions of the learned counsel appearing for the

parties and perused the material on record.

9. At this juncture, it is apt to refer to the

judgment of the Hon'ble Apex Court in the case of

Small Scale Industrial Manufacturers Association

(Registered), referred to supra and the relevant

paragraphs of the said judgment are quoted hereunder

for ready reference (paragraphs 79, 80 and 81);

"79. Now so far as the submission on behalf of the petitioners that the RBI should have issued directions which are sector specific and addressing such sector specific issues is concerned, at the outset, it is required to be noted that as such the Committee headed by Shri K.V. Kamath had gone into such sector specific issues and gave its recommendations. The recommendations of the Kamath Committee have been substantially

accepted by the RBI in its circular dated 7.9.2020 which provides for separate threshold for 26 sectors including power, real estate and construction. Even otherwise, it is required to be noted that every sector might have suffered differently and therefore it will not be possible to provide sector specific/sector-wise reliefs. The petitioners cannot pray for sector specific relief by either waiver of interest or restructuring by way of present proceedings under Article 32 of the Constitution of India and the question of such financial stress management measures requires examination and consideration of several financial parameters and its impact.

80. Now so far as the submission on behalf of the petitioners that as per the notifications/circulars/reliefs offered by the RBI and/or Finance Department of the Union of India ultimately it is left to the bankers and it should not have been left to the bankers and the Government/RBI must intervene and provide further reliefs is concerned, at the outset, it is required to be noted that as such the bankers are commercial entities and since the customer profile, organizational structure and spread of each lending institution is widely different from others,

each lending institution is best placed to assess the requirements of its customers and therefore, the discretion was left to the lending institutions concerned. Any borrowing arrangement is a commercial contract between the lender and the borrower. RBI and/or the Union of India can provide for broad guidelines while recommending to give the reliefs.

81. Now so far as the submission on behalf of the petitioners that the relief packages which are offered by the UOI/RBI/Bankers/Lenders are not sufficient and some better and/or more reliefs should be offered is concerned, it is not within the judicial scope of the courts to issue such directions.

No     mandamus           can be     issued to grant
some       more reliefs/packages.        As observed

hereinabove, the court cannot interfere with the economic policy decisions on the ground that either they are not sufficient or efficacious and/or some more reliefs should have been granted. The Government might have their own priorities and the Government has to spend in various fields and in the present case like health, medicine, providing food etc. Even as per the case of the Union of India and so stated in the counter filed on behalf of the Union of India and the RBI, so many policies have

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been announced to mitigate the impact of Covid-19 pandemic, which are referred to hereinabove."

10. Thus, it is clear that the Hon'ble Apex Court

while considering a batch of petitions filed under Article

32 of the Constitution of India challenging the Circular

dated 27.3.2020 - Covid 19 Regulatory Package issued

by the RBI inter alia seeking direction to the RBI to

extend the moratorium, without any interest being

levied on the loans availed by the petitioners therein,

has held that the RBI and/or the Union of India can

provide for broad guidelines while recommending to give

the reliefs. It has further held that whether more relief

should be offered by the Union of

India/RBI/Bankers/lenders, would not come within the

judicial scope of the Courts to issue such directions.

The economic policy decisions even announced to

mitigate the impact of Covid 19 pandemic cannot come

within the realm of judicial review. Merely for the

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reason that some of the reliefs are not suiting the

desires of the borrowers, the same cannot be said to be

arbitrary/or violative of Article 14 of the Constitution of

India.

11. The learned Single Judge in paragraph 23.5

has observed as under;

"23.5. Unfortunately, the RBI Circular does not deal in detail with the mode and methodology of consideration and grant of a moratorium by a lending institution. RBI ought to have envisaged this and laid down a methodology to be followed by all lenders rather than leaving the discretion to each lender, which would result in discriminatory and/or contradictory policies/practices being adopted by each lender at its whims and fancies, justifying such policies/practices on the basis of a so-called board approved Policy. In the present case, the Board Approved policy of all three banks do not have any objective criteria contained in them, the wording of the Board Approved policy is vague, there being no manner of ascertaining if the actions of Respondents 5 to 7, more particularly Respondent No. 5 is or is not in accordance with the board approved policy."

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It has been further observed at paragraph 25.4 as

under;

"25.4. In view of the above, it is held that no directions could be issued to Respondent 1 and 2 - Union of India or Respondent No. 3 - State of Karnataka, to in turn issue directions to Respondent No.4- RBI for the implementation of the Circular. The contentions of the RBI that the dispute is between the Petitioner and Respondents No.5 to 7 is not acceptable since the dispute arises out of the implementation or not of a Circular issued by the RBI. RBI is therefore directed to monitor the implementation of the Circular, including verification of whether there are Board-approved policies formulated by each of the lenders, direct all the banks to submit the Board-approved policies for approval to the RBI, to approve such board-approved policy, verify if such a board-approved policy contains objective criteria, set up a proper and effective grievance redressal forum for any aggrieved borrower to approach on account of the improper or non- implementation of the Policy and/or Circular etc.,"

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Thus, these observations are crystallized in

paragraph 26(i) of the order impugned, which reads

thus;

"i) A mandamus shall ensue to Respondents No.4 directing Respondent No. 4 - RBI to enforce the recovery package as contained in Circular dated 27.03.2020 issued by it and as detailed in para 26.4 above."

12. These observations/directions made by the

learned Single Judge runs contrary to the dictum

enunciated by the Hon'ble Apex Court in Small Scale

Industrial Manufacturers Association (Registered),

referred to supra.

13. As could be seen, RBI can issue only broad

guidelines for mitigating the Covid 19 crisis as done in

the Circular dated 27.3.2020. Based on these

paragraphs 23.5 and 25.4, the direction issued to the

appellant to enforce the recovery package as per

paragraph 26(i) of the impugned order cannot be

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