Writ Courts neither have means nor expertise to re-evaluate prudential decisions of the Banks: Karnataka High Court

Writ Courts neither have means nor expertise to re-evaluate prudential decisions of the Banks: Karnataka High Court

The Karnataka High Court in its recent judgement held that writ courts neither have means nor the expertise to re-evaluate the "prudential decisions" of the Banks that are made in the ordinary course of their commercial transactions with accumulated wisdom in the trade.

According to the Court, the fact that a bank's business is regulated by the RBI norms does not ipso facto establish a pervasive control by the RBI or the Central Government.

A single judge bench of Justice Krishna S Dixit thus dismissed a petition.

The present petition was filed by M/S Nitesh Residency Hotels Pvt Ltd challenging recall of all credit facilities extended to it by the Yes Bank. The firm had also challenged the NPA notice issued to it under the SARFAESI Act, disclosing outstanding liabilities aggregating to Rs. 358,39,49,064. However the single judgement bench of Justice Krishna S Dixit dismissed a petition.

It then held,

"In matters like this, a Writ Court cannot undertake examination of the same, as if it is an administrative action amenable to judicial review. The transactions between a banker and the borrower are essentially contractual in nature."

Then the court opined,

"When the preliminary issue as to maintainability of the Writ Petition is raised, what needs to be examined is not invariably the status of answering respondent as 'State' or its 'instrumentality' but the 'essential nature' of its action called in question. Since the enactment of the Constitution, our system has moved from the formality of 'status' of an entity to the substance of its 'function', while adjudging the claim for writ remedies."

It then observed,

"In other words, even if the respondent Bank answers the description of 'other authorities' under article 12, that per se may not justify invocation of constitutional jurisdiction. Conversely, even if the respondent does not answer the said description, its action may still be susceptible to judicial review should it be animated by sufficient public law elements."

It was held that the bank was justified in the action taken against the borrower the bench said,

"Petitioner is not a peasant or a petty farmer who has availed some frugal loans for mitigating the hardships of life. It is an incorporated company purporting to be worth crores of rupees. Its Managing Director & other Directors have participated in contracting the loans in hundreds of crores of rupees. A customer owes to the Bank a duty to disclose all facts and circumstances that would in the ordinary course of business figure in the decision making process as to the intended loan transaction. This duty becomes more pronounced when such transactions involve huge loans & liabilities."

It added, "A perusal of the petition papers leaves no manner of doubt as to clandestine failure on the part of the borrower in discharging this duty, to say the least. 'Thou art weighed in the balance and found wanting' aptly applies to the case of petitioner. That being the position, the lender Bank is more than justified."

The Court in its concluding remarks held that, "The petitioner seeks to call in question the Notice issued u/s 13(2) of the SARFAESI Act, 2002. There is an alternate and more efficacious relief availing to the borrower/notice for doing this, by invoking remedial provisions of the Act. Writ remedy is not the panacea for all such arguable legal injuries."