Axis Bank vs Joy Kuriakose
2021 Latest Caselaw 12611 Ker

W.A. No. 455/2021                          ;1:



                    IN THE HIGH COURT OF KERALA AT ERNAKULAM

                                    PRESENT

            THE HONOURABLE THE CHIEF JUSTICE MR.S.MANIKUMAR

                                       &

                    THE HONOURABLE MR. JUSTICE SHAJI P.CHALY

            FRIDAY, THE 28TH DAY OF MAY 2021 / 7TH JYAISHTA, 1943

                               WA NO. 455 OF 2021

   AGAINST THE JUDGEMENT DATED 22.01.2021 IN WP(C) 18354/2020 OF HIGH

                                COURT OF KERALA
APPELLANT/RESPONDENT NO.1:

             AXIS BANK,
             THODUPUZHA BRANCH, THODUPUZHA P.O., IDUKKI-685
             581,REPRESENTED BY BRANCH MANAGER.

             BY ADV MADHU RADHAKRISHNAN

RESPONDENTS/PETITIONER/RESPONDENTS 2 TO 4:

     1       JOY KURIAKOSE,
             AGED 52 YEARS, PROPRIETOR, MALANADU RUBBERS, RESIDING AT
             PYMPALLI HOUSE, KARINKUNNAM, IDUKKI-685 586.

     2       RESERVE BANK OF INDIA,
             REPRESENTED BY REGIONAL MANAGER, REGIONAL OFFICE, KALOOR,
             KOCHI-682 018.

     3       UNION OF INDIA,
             REPRESENTED BY SECRETARY TO BANKING, CENTRAL SECRETARIAT,
             NEW DELHI-110 001.

     4       THE NATIONAL CREDIT GUARANTEE TRUSTEE COMPANY LIMITED,
             G BLOCK BKC, BANDRA KURLA COMPLEX, BANDRA EAST, MUMBAI,
             MAHARASHTRA-400 051.

             BY ADV SRI.MILLU DANDAPANI

             R3 BY ASGI


THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 29.03.2021, THE COURT
ON 28.05.2021 DELIVERED THE FOLLOWING:
 W.A. No. 455/2021                    ;2:


                             JUDGMENT

SHAJI P. CHALY,J.

Respondent No. 1 in W.P.(C) No. 18354 of 2020--Axis Bank has

filed the appeal challenging the judgment of the learned single Judge

dated 22.01.2021, whereby the learned single Judge allowed the writ

petition directing the appellant Bank to make available to the

petitioner the balance amount due to him under the Emergency Credit

Line Guarantee Scheme (ECLGS) after adjusting interest, if any, that

may be required to be done due to re-adjustment of accounts.

2. The first respondent in the appeal filed the writ petition

basically submitting that he is the sole proprietor of Malanadu Rubbers

and a dealer of rubber sheets. The writ petitioner/first respondent is

having an overdraft facility of Rs. 230 lakhs from the appellant Bank.

In view of the pandemic Covid-19, ECLGS and moratorium was

declared by the Reserve Bank of India in accordance with the decision

taken by the Government of India. The aim of the scheme is to provide

working capital for the entrepreneurs who are having scarcity of funds.

As per the scheme, 20% of the existing loan will be sanctioned for the

purpose of the entrepreneurs.

W.A. No. 455/2021 ;3:

3. The claim of the writ petitioner/first respondent was that he is

eligible for the benefit under the aforesaid scheme. Even though all the

papers were submitted, the loan was not sanctioned and thereupon, a

complaint was filed before the Committee constituted for the purpose.

Finally, the loan was sanctioned; but 65% of the loan amount was

appropriated in the head of existing dues and for the remaining

amount, a lean was imposed. Therefore, according to the writ

petitioner/first respondent, the benefit granted under the scheme was

practically destroyed.

4. The appellant Bank has filed a statement and an additional

statement refuting the allegations and claims raised by the writ

petitioner/first respondent. According to the appellant Bank, the

Reserve Bank of India, by circular dated 27.03.2020, directed all the

Banks to permit a moratorium of 3 months in payment of all

instalments commencing from 01.03.2020 to 31.05.2020 and with

regard to the cash credit facilities, the Banks were directed to defer

the recovery of interest applied in respect of all such facility. However,

it was further directed that the accumulated interest shall be recovered

immediately after the completion of the period, as is evident from Ext.

R1(b).

W.A. No. 455/2021 ;4:

5. On 23.05.2020, the Reserve Bank of India, as per their

circular, granted a second moratorium from 01.06.2020 to 31.08.2020.

It was also pointed out that the writ petitioner was sanctioned the cash

credit facility on certain terms and conditions, as is evident from Ext.

R1(c). As per the terms of sanction, the writ petitioner was restrained

from diverting the working capital funds and the writ petitioner was to

route all the transactions through the cash credit account. However,

when the appellant Bank came across the balance sheet of the writ

petitioner for the year 2018-2019, it was found that the petitioner was

not routing the funds through the cash credit accounts and moreover,

he was having 3 current accounts, one each in Indian Overseas Bank,

State Bank of India and Federal Bank Ltd.

6. It was also pointed out that the Reserve Bank, as per its letter

dated 05.05.2004, had directed all the banks to scrupulously ensure

that their branches did not open the current accounts of entities which

enjoy the credit facilities from the banking system without specifically

obtaining a 'No Objection Certificate' from the lending bank. Further,

the Banks are all advised to note that non-adherence to the above

discipline would be perceived to be adhering to the siphoning of funds.

W.A. No. 455/2021 ;5:

7. According to the appellant, on understanding that there was

siphoning of funds by the writ petitioner, he was intimated to stop

diversion and reroute the funds through the account of the writ

petitioner maintained with the appellant Bank. Communication issued

by the Bank in that regard with regard to the current account

maintained by the writ petitioner with 3 Banks are produced as Exts.

R1(e), R1(f) and R1(g). According to the appellant Bank, in spite of its

earnest efforts, the writ petitioner failed to close the account and

continued with the diversion of funds against the sanctioned

permissions as well as the RBI directions. Thus, even though

permission was granted with ECLGS facility and an amount of

Rs.46,00,000/- was credited to his account to help him with the

business, the appellant Bank has marked a lien with regard to Rs.8.96

lakhs only to ensure that the writ petitioner routes all his transactions,

through the cash credit account maintained with the appellant bank

and close all the other current accounts maintained with other banks.

8. The appellant has also submitted that once the other credit

accounts are closed by the writ petitioner/first respondent, the said

amount would be released. Thus, according to the appellant Bank, the

efforts made by the writ petitioner is only to persuade the Bank to go W.A. No. 455/2021 ;6:

against the RBI directions with respect to the routing of the amounts

and restrictions to open the cash credit accounts with other banks.

9. In the additional statement filed by the appellant Bank, it was

submitted that it had at every point informed the writ petitioner about

the deductions made from the ECLGS, which was done for the benefit

of the petitioner and there was concurrence of the same by the

petitioner. Therefore, after having utilized Rs.17.75 lakhs out of the

total amount of Rs.46,00,000/-, the writ petitioner/first respondent

had a rethinking and filed the writ petition. So also, it was submitted

that the deductions made by the Bank with the concurrence of the writ

petitioner is reflected in the statement filed by the appellant Bank on

05.12.2020 and further that the writ petitioner has not stated

anywhere that he had not given concurrence for adjustment of,

ECLGS amount and if the same is completely released to the writ

petitioner, that will amount to reversal of various credits given to the

account of the writ petitioner and render the account of the petitioner

as a Non Performing Asset.

10. It was also stated that while the writ petition was pending,

the writ petitioner/first respondent approached the District Consumer

Forum, Idukki by filing C.C. No. 168 of 2020 and obtained an ex parte W.A. No. 455/2021 ;7:

interim order from the Forum, whereby the appellant has been

restrained from taking any coercive proceedings and for declaring the

cash credit/OD account as NPA. The said order has been further

extended on 30.12.2020, which is produced as Ext. R1(h). The

appellant Bank has also given the details of the amount to be paid by

the writ petitioner/first respondent, if the ECLGS amount is withdrawn

and as per which an amount of Rs. 16,44,320.46 was remaining due.

Other contentions were also raised.

11. For and on behalf of the Union of India, a statement was

filed by the Assistant Solicitor General explaining the circumstances as

to whether deductions, from ECLGS advances are permissible under

the scheme. According to the Union of India, ECLGS is a scheme to

provide 100% guarantee coverage to Banks and Non Banking Financial

Companies to enable them to extent the emergency credit facilities to

business enterprises/MSMEs, in view of pandemic Covid-19 to meet

their additional term loan/additional working capital requirements.

12. It is further submitted that a detailed Frequently Asked

Questions (FAQ) page is maintained in the website of the Union of

India, which is accessible to the general public. It was also stated that

as per FAQ No.28, the banks are to offer loans upto 20%, which is W.A. No. 455/2021 ;8:

generally and mutually agreed terms between the borrower and the

lender based on factors relevant to the business operations. Other

facilities of the scheme are also narrated. It was predominantly

submitted that since the position is settled as stated above, the

deduction from the ECLGS by the Banks is permissible under the

scheme, if the same is agreed between the borrower and the lender.

13. The learned single Judge, after taking into considerations the

submissions put forth and taking into account the various facets of

Ext. P1 ECLGS, found that since the intention is to help the

entrepreneurs to survive the grave financial situation existing in the

country, the scheme is intended to make available cash flow to

entrepreneurs, so that they shall survive the financial emergency and

take steps to sustain their business and in such circumstances, without

express concurrence of the entrepreneurs, the Money Lending

Institutions are not expected to make deductions from, the ECLGS

loan. It was also taken note of by the learned single Judge that Ext.

R1(a) letter was issued by the appellant Bank to the writ

petitioner/first respondent and even though the Bank has stated that

the writ petitioner has agreed for the deduction of the amount

advanced under the scheme, it is to be noted that Ext. R1(a) was W.A. No. 455/2021 ;9:

issued on 09.07.2020 and the writ petitioner approached this Court by

filing the writ petition with the grievance on 24.08.2020. Therefore,

the learned single Judge was inclined to believe that the deductions

were not made with the concurrence of the writ petitioner.

14. We have heard Sri. Madhu Radhakrishnan for the appellant

Bank and Sri. P. Babu Kumar for the first respondent and the learned

Assistant Solicitor General for the Union of India, and perused the

pleadings and materials on record.

15. The discussion made above would make it clear that the

question to be decided by this Court in the appeal boils down to one

issue as to whether the writ petitioner agreed to deduct the amount to

adjust against the cash credit facility enjoyed by the writ petitioner,

from the ECLGS granted to him. It is the specific case of the Bank that

it has issued Ext. R1(a) and deducted the amount as agreed by the

writ petitioner. Receipt of Ext. R1(a) is admitted by the writ petitioner.

However, the writ petirioner has not challenged the said letter issued

by the Bank or nowhere in the writ petition it is stated that he has not

agreed to the appellant Bank to deduct the ECLGS amount against the

overdue interest in the cash credit facility enjoyed by him with the

appellant Bank.

W.A. No. 455/2021 ; 10 :

16. The case put forth by the writ petitioner that was weighed with the

learned single Judge was the intention of the scheme, which is

contained under Ext. P1. Paragraph 2 thereto clearly specifies that the

intention of the scheme is to provide 100% guarantee coverage for the

Guaranteed Emergency Credit Line (GECL), which shall be pre

approved sanction limit of upto 20% of the loan outstanding as on

29.02.2020 to eligible borrowers in the form of additional working

capital term loan facility (in case of banks and financial institutions)

and additional term loan facility in case of Non Banking Financial

Companies (NBFCs) from all Member Lending Institutions (MLIs) to

eligible Business Enterprises/Micro, Small and Medium Enterprise,

(MSME) borrowers, including interested PMMY borrowers, in view of

Covid-19 crisis as a special scheme.

17. Paragraph 4, dealing with 'definitions' emphasizes the

purposes of the scheme, which reads thus:

● Amount in Default" means the principal and interest amount outstanding in the account of the borrower in respect of term loan/working capital term loan facility (including interest) as the case may be, as on the date of the account becoming NPA, or on the date of lodgment of claim application, whichever is lower, or on such other date as may be specified by Trustee Company for preferring any Claim against the guarantee cover subject to a maximum of amount guaranteed.

● "Credit facility" means financial assistance provided under the Scheme by way of additional working capital term loan facility (in case of banks W.A. No. 455/2021 ; 11 :

and Financial Institutions), and additional term loan facility (in case of NBFCs) extended by all Member Lending Institution (MLI) to eligible Business Enterprises/Micro, Small and Medium Enterprise (MSME) borrowers. The financial assistance provided as part of the Scheme is to be operated as a separate loan account.

● Eligible borrower" means all Business Enterprises/SME institution borrower accounts with outstanding loans of up to Rs. 25 crore as on 29.2.2020, and annual turnover of up to Rs.100 Crore on FY 2019-20. In case accounts for FY 2019-20 are yet to be audited/finalised, the MLI may rely upon the borrowers declaration of turnover. The Scheme is valid for existing customers on the books of the MLI. Borrower accounts should be less than 60 days past due as on 29th February, 2020 in order to be eligible under the Scheme. For the purpose of this Scheme, Business Enterprises/MSMEs would also include loans covered under Pradhan Mantri Mudra Yojana (PMMY). "Guarantee Cover" means maximum cover available per eligible borrower of the amount in default in respect of the credit facility extended by the lending institution. For this Scheme, the guarantee coverage would be 100% of the amount in default.

● Member Lending Institutions (MLI) ● Banks All Scheduled Commercial Banks ● Financial Institutions as defined in sub-clause (i) of clause © of Section 45-I of the Reserve Bank of India Act.

● 'NBFC' Non Banking Financial Company means a non banking financial company as defined in clause (f) of Section 45-I of the RBI Act, 1934 and which has its principal business as defined by RBI and has been granted a certificate of registration under sub- Section (1) of Section 3 of the Act. All NBFCs which have been in operation for 2 years as on 29th February, 2020 would be eligible under the scheme.

● "Non Performing Asset" means an asset classified as non performing based on the instructions and guidelines issued by the Reserve Bank of India from time to time.

● Primary security" in respect of a credit facility shall mean the assets created out of the credit fäcility so extended.

● "Interest Rate" for a lending insütution means the rate so declared by thatthe lending institution from timc to time as per Reserve BankBank of India guidelines based on which interest rate applicable for the loan will be determined.

● "Tenure of guarantee cover" means the maximum period of guarantee cover from the Guarantee sanction date, änd it shall be co-terminus with the W.A. No. 455/2021 ; 12 :

tenor the loan under GECL.

It is undisputed that the petitioner was entitled to the ECLGS benefit

and it was accordingly that the appellant Bank extended the facility to

the writ petitioner.

18. The Union of India has filed a statement before the learned

single Judge stating that the Member Lending Institution and the

loanee are entitled to enter into an agreement for adjustment of the

loan provided under the scheme. It is an undisputed fact that Ext.

R1(a) letter was issued by the Bank to the writ petitioner basically

stating that the writ petitioner has agreed for deduction of amounts to

the existing loan account. According to the appellant Bank, apart from

the guarantee offered to the cash credit facility, there is no guarantee

against the loans advanced under the ECLGS.

19. In our considered opinion, going by the benefits of the

scheme under normal circumstances, the amounts should have been

released to the writ petitioner to tide over the pandemic situation. But,

it is an admitted fact that the writ petitioner has not adhered to the

conditions of the appellant Bank and the circulars issued by the

Reserve Bank of India in regard to the amounts advanced under the

cash credit facility and opening up of the cash credit facility with other W.A. No. 455/2021 ; 13 :

banks without securing concurrence from the appellant bank and not

routing the transactions through the appellant Bank. These facts are

not at all disputed by the writ petitioner/first respondent.

20. It is also an admitted fact that consequent to the overdue

interest that is due from the writ petitioner, the account has become a

Non Performing Asset (NPA), which only persuaded the writ petitioner

to approach the District Consumer Forum, Idukki and secured interim

orders restraining the Bank from declaring the account as NPA and

from proceeding for recovery.

21. In view of the peculiar facts in the case at hand, Ext.R1(a)

communication issued by the appellant Bank to the writ petitioner

dated 09.07.2020 assumes importance. It is clearly stated in the said

letter that as agreed by the writ petitioner, adjustments are made by

the Bank. The writ petitioner/first respondent has not produced the

said letter in the writ petition, nor has disputed it by filing a reply that

he has not received the said letter or that he has not agreed for

adjustment of the amount. On a proper understanding of the scheme,

it was to tide over the pandemic situation that the ECLGS was directed

to be offered to the entrepreneurs.

W.A. No. 455/2021 ; 14 :

22. Therefore, if and when the credit facility availed by the writ

petitioner was outstanding to the extent of declaring it as NPA, when

adjustments are made to the same on agreement, the adverse

situation that was remaining against the writ petitioner was being

removed. It is an admitted fact that if any agreement is made by and

between the writ petitioner and the appellant Bank, the appellant Bank

was entitled to make adjustments accordingly.

23. The learned single Judge has found that the writ petitioner

has approached the Court by filing the writ petition without much

delay after receiving Ext. R1(a) letter, and therefore presumably

treated it as an indicative factor to show that the writ petitioner has

not agreed for the adjustment/disputing the same. At the same time,

it is important and relevant to note that the writ petitioner has not

mentioned anything about the letter issued by the Bank and the

agreement made. Therefore, the conduct of the writ petitioner/first

respondent itself shows that the writ petitioner has agreed for the

adjustment of the amount. Merely because the amount granted under

ECLGS is adjusted against the cash credit facility availed by the writ

petitioner, it cannot be said that the writ petitioner is not benefited by

the amount under the scheme, since the loan is granted under the W.A. No. 455/2021 ; 15 :

scheme as a facility against a cash credit advance and the writ

petitioner was at liberty to seek adjustment of the same.

24. Therefore, evaluating the circumstances accordingly, we are

of the view that the writ petitioner/first respondent has agreed for the

adjustment of the amount, which the writ petitioner was liable to pay

to the Bank to save the credit facility from NPA. The silence of the writ

petitioner in respect of the agreement and Ext. R1(a) letter dated

09.07.2002 of the Bank, according to us, makes it clear that the filing

the writ petition was only an afterthought and attempt to get the

amounts released in spite of the agreement, and with that intention

alone, after the filing of the writ petition, the writ petitioner

approached the District Consumer Commission against the Bank,

whereby the Bank was restrained from declaring the Credit facility,

NPA. Thinking so, it cannot be said that the Bank, while discharging its

duty, had committed any illegality or arbitrariness justifying the

interference of the writ court exercising the power of judicial review

under Article 226 of the Constitution of India, which are the basic and

fundamental requirements to sustain a writ petition under law. Which

thus means, if there was any violation of the agreement conditions,

the writ petitioner ought to have challenged it resorting to other W.A. No. 455/2021 ; 16 :

statutory or civil remedy available under law, rather than invoking the

extraordinary remedy under the Constitution of India.

25. On assimilation of the factual and legal circumstances, we

are of the view that the Bank is entitled to succeed in the appeal.

Therefore, the appeal is allowed and the judgment of the learned

single Judge is set aside and accordingly, the writ petition would stand

dismissed.

S. MANIKUMAR, CHIEF JUSTICE.

SHAJI P. CHALY, JUDGE.

Rv