1 wp-6409-10 mgn IN THE HIGH COURT OF JUDICATURE AT BOMBAY APPELLATE SIDE, CIVIL JURISDICTION WRIT PETITION NO.6409 OF 2010 DSL Enterprises Private Limited & Ors. ..Petitioners Versus The Chief General Manager, DBOD, Reserve Bank of India & Ors. ..Respondents Mr. Chirag Balsara, Mrs. Swati Deshpande and Mr. Mukul Taly i/b. S. Mohamedbhai and Co., for the petitioners. Mr. Shyam Mehta with Mr. Mihir Mody, Ms. Launn Crasto and Mr. Rajesh Talekar i/b. M/s.K.Ashar & Co., for respondent No.1. Mr.Shirraz Rustomjee with Ms. Pratibha Mehta and Ruchir Wani i/b. M/s.Little & Co., for Respondent No.2. CORAM: B. H. MARLAPALLE & U.D.SALVI, JJ. DATE: 24th November, 2010. P.C. Heard the learned Counsel for the respective parties. The predecessor of the petitioner No.1 company i.e. M/s.Datar Switchgear Limited of which the present petitioner Nos.2 and 3 were also Directors 2 wp-6409-10 was established in the year 1984 and it became a sick company. Consequently, proceedings under the B.I.F.R., came to be initiated. During the pendency of these proceedings before the B.I.F.R., the predecessor company's Switchgear Division was taken over by M/s. Larsen & Toubro Limited for a fixed sum which was distributed amongst all the creditors so as to adjust part of the outstanding dues. The remaining activity was renamed as DSL Enterprises Private Limited with the petitioner Nos. 2 and 3 as the Directors of the said new company. The Board by its order dated 14th September, 2006 sanctioned the rehabilitation scheme and in Clause 9.1.7 the said order covered the obligations of the Bank of Maharashtra (Respondent No.2). The bank accepted the restructure term loan of Rs.173.86 lakhs and Zero Coupon Bond of Rs.531.70 lakh in the Resulting Company i.e. the present petitioner No.1 and it agreed to waive the entire balance dues over and above Rs.818.00 lakh including interest, penalties, liquidated damages, etc. 2. It is the petitioners case that the name of its predecessor i.e. M/s.Datar Switchgear Limited was shown as a willful defaulter for a sum of Rs.174.00 lakhs pertaining to the Agra Road Branch of the Bank of Maharashtra as per the data available on 30th September, 2008 and, 3 wp-6409-10 therefore, the petitioner No.2 submitted a representation to the said bank on 7th June, 2009 and claimed for withdrawal of the said information unconditionally which was furnished to CIBIL (Credit Information Bureau (India) Limited) and also for damages. As the said representation, despite reminders, was not decided, the petitioners submitted an application to the Reserve Bank of India on or about 15th June, 2009 for a reference to arbitration under Section 18 of the Credit Information Companies (Regulation) Act, 2005 (for short CIC Act). While these applications were pending the petitioners approached this Court by filing Writ Petition No.2396 of 2009 on or about 17th November, 2009 and in the said petition the constitutional validity of Sections 18 and 19 of the CIC Act was also challenged. This petition came to be disposed off by a Division Bench on 26th March, 2010 with a direction to the Reserve Bank of India to take a decision on the pending application of the petitioners submitted under Section 18 of the CIC Act and this Court also held that the issue of constitutional validity raised by the petitioners was not germane to the issues raised in the petition. We are informed across the bar by Mr. Balsara that this order dated 26th March, 2010 is subject matter of challenge in S.L.P. (Civil) No.14027 of 2010. 4 wp-6409-10 3. Consequent to the directions of this Court vide order dated 26th March, 2010 in Writ Petition No.2396 of 2009 the Chief General Manager of the Reserve Bank of India rejected the petitioners application under Section 18 of the C.I.C. Act by his order dated 21st May, 2010 and hence this petition under Articles 226 and 227 of the Constitution with the substantial relief as follows:- “(a) this Hon'ble Court be pleased to quash and set aside the impugned order dated 21.5.2010 (Exhibit “FF” hereto) passed by the Respondent No.1, by exercising its jurisdiction under Art. 227 r/ w. 226 of the Constitution of India by issuing an appropriate Writ of Certiorari and/or a Writ of Mandamus or any other appropriate Writ or Order or Direction and be pleased to appoint a 3 Member Arbitral Tribunal in accordance with Sec. 18 of the CIC (R) Act.” 4. The Chief General Manager of the R.B.I. while passing the impugned order framed the following two issues:- “(i) Whether any dispute on matters relating to the business of credit information, within the meaning of Section 18 of the Credit Information Companies (Regulation) Act, 2005, exists between the Petitioner and the banks/CIBIL? 5 wp-6409-10 (ii)Whether such 'dispute' calls for appointment of arbitrator under Section 18 of the Credit Information Companies (Regulation) Act, 2005?” Both the issues have been answered in the negative. It is also pertinent to note that the applications under Section 18 of the CIC Act were filed not only against the respondent No.2 bank, but also against Dena Bank as well as Corporation Bank and the applications have been rejected against all the banks by the impugned common order. It has been held that the disputes raised by the petitioner company against the Bank of Maharashtra are all in respect of the implementation or interpretation of the order passed by B.I.F.R., and such disputes do not fall within the ambit of the arbitration proceedings contemplated under Section 18 of the C.I.C. Act. 5. Mr. Balsara, the learned Counsel for the petitioners submitted that when the Bank of Maharashtra named the predecessor of the petitioner No.1 as a willful defaulter, it was not heard nor any of its Directors were given notice and thus the principles of natural justice were violated. After the order was passed by the B.I.F.R., restructuring the financial liabilities, in September, 2006, the prior defaults, if any, could not be acted upon by 6 wp-6409-10 the bank and the bank did not withdraw the proceedings initiated by it before the B.I.F.R. He also submitted that the impugned order is without application of mind and grossly erroneous. As per Mr. Balsara there does exist a dispute relating to the “business of credit information” within the meaning of Section 18 of the CIC Act between the petitioners and the bank and, therefore, the impugned order is required to be quashed and set aside and the application submitted under Section 18 of the C.I.C. Act is required to be allowed by referring the said dispute for arbitration under the Arbitration and Conciliation Act, 1996. 6. As per the R.B.I., the order impugned does not suffer from any error apparent on the face of the record as the view taken by the Chief General Manager is in consonance with the scheme of the Act. It was pointed out that there is no dispute related to the business of credit information between the credit information company, the bank and the petitioners and the reasoning set out in the impugned order, therefore, cannot be termed as erroneous. As per the Bank of Maharashtra, it has not acted illegally in naming the predecessor of petitioner No.1 as a willful defaulter and in the same process the guidelines laid down by the R.B.I., and as applicable at the relevant time were duly followed. It was also urged before us that even 7 wp-6409-10 after the restructuring order was passed the petitioners continued to be the defaulters and under some pretext or the other applications after applications have been filed before the B.I.F.R., for extension of moratorium period. It has also been brought to our attention that the petitioners have already filed Regular Civil Suit No.679 of 2009 in the Court of Civil Judge, Senior Division at Nashik with a host of prayers, some of which are the subject matter of the application submitted under Section 18 of the C.I.C. Act. It was urged before us that the petitioners' acts after the restructuring order was passed by the B.I.F.R., disentitle themselves for the discretionary relief under Article 226 of the Constitution. 7. Section 2(b) of the C.I.C. Act defines the term “borrower” and undoubtedly the petitioner No.1 company is the borrower of the Bank of Maharashtra as of now. As per sub-section (d) of the Section 2 of the said Act “credit information” means any information relating to - “(i) the amounts and the nature of loans or advances, amounts outstanding under credit cards and other credit facilities granted or to be granted, by a credit institution to any borrower; (ii) the nature of security taken or proposed to be taken by a credit 8 wp-6409-10 institution from any borrower for credit facilities granted or proposed to be granted to him; (iii) the guarantee furnished or any other non-fund based facility granted or proposed to be granted by a credit institution for any of its borrowers; (iv) the credit worthiness of any borrower of a credit institution; (v) any other matter which the Reserve Bank may, consider necessary for inclusion in the credit information to be collected and maintained by credit information companies, and, specify, by notification, in this behalf.” Section 14 of the Act deals with functions of a credit information company like CIBIL in the instant case and Section 18 provides for settlement of disputes. It would be appropriate to to reproduce the scheme of Sections 14 and 18 of the CIC Act as under:- “14. Functions of a credit information company.- (1) A credit information company may engage in any one or more of the following forms of business, namely:- (a) to collect, process and collate information on trade, credit and financial standing of the borrowers of the credit institution which is a member of the credit information company; 9 wp-6409-10 (b) to provide credit information to its specified users or to the specified users of any other credit information company or to any other credit information company being its member; (c) to provide credit scoring to its specified users or specified users of any other credit information company or to other credit information companies being its members; (d) to undertake research project; (e) to undertake any other form of business which the Reserve Bank may, specify by regulations as a form of business in which it is lawful for a credit information company to engage. (2) No credit information company shall engage in any form of business other than those referred to in sub-section (1); (3) Any credit information company for the purposes of carrying on the business of credit information may-- (a) register credit institutions and other credit information companies, at their option as its member, subject to such terms and conditions as may be pre-dermined and disclosed by such credit information company; (b) charge such reasonable amount of fess, as it may deem appropriate not exceeding the maximum fee, as may be specified 10 wp-6409-10 under section 27, for furnishing credit information to a specified user; (c) generally to do all such other acts and perform such other functions as are necessary to facilitate proper conduct of its affairs, business and functions in accordance with the provisions of this Act.” “18. Settlement of dispute.-- (1) Notwithstanding anything contained in any law for the time being in forcew, if any dispute arises amongst, credit information companies, credit institutions, borrowers and clients on matters relating to business of credit information and for which no remedy has been provided under this Act, such disputes shall be settled by conciliation or arbitration as provided in the Arbitration and Conciliation Act, 1996, as if the parties to the dispute have consented in writing for determination of such dispute by conciliation or arbitration and provisions of that Act shall apply accordingly. (2) Where a dispute has been referred to arbitration under sub- section (1), the same shall be settled or decided.-- (a) by the arbitrator to be appointed by the Reserve Bank; (b) within three months of making a reference by the parties to the 11 wp-6409-10 dispute: Provided that the arbitrator may, after recording the reasons therefor, extend the said period up to a maximum period of six months: Provided further that, in an appropriate case or cases, the Reserve Bank may, if it considers necessary to do so (reasons to be recorded in writing), direct the parties to the dispute to appoint an arbitrator in accordance with the provisions of the Arbitration and Conciliation Act, 1996, for settlement of their dispute in accordance with the provisions of that Act. (3) Save as otherwise provided under this Act, the provisions of the Arbitration and Conciliation Act, 1996 shall apply to all arbitration under this Act as if the proceedings for arbitration were referred for settlement or decision under the provisions of the Arbitration and Conciliation Act, 1996.” 8. In its application dated 15th June, 2009 submitted under Section 18 of the C.I.C. Act to the R.B.I., the petitioner No.1 and followed by the subsequent application dated 7th August, 2009 by petitioner No.2, it was mainly urged that the Bank of Maharashtra had wrongly, illegally and 12 wp-6409-10 arbitrarily named the predecessor of the petitioner No.1 as a willful defaulter and the said information was displayed by CIBIL on its website and this dispute (whether the predecessor company could be named as the willful defaulter) was required to be referred to arbitration by allowing the application under Section 18 of the C.I.C. Act. 9. We have perused the reasoning set out in the impugned order as well as the scheme of the C.I.C. Act and more particularly Sections 2, 6, 14 and 18 and the finding recorded in the impugned order that there is no dispute of the matters relating to the business of credit information within the meaning of Section 18 of the Act, cannot be said to be erroneous and once this issue has been answered in the negative, there was no question of appointment of an Arbitrator. The term “business of credit information” does not confine to a limited sphere between the petitioners and the bank, and if the same is to be read in the facts of this case the information displayed on the website of CIBIL and as provided by the Bank of Maharashtra under Section 14(1)(a), naming M/s.Datar Switchgear Limited as a willful defaulter would not relate to the “business of credit information” within the meaning of the C.I.C. Act. It is mainly a dispute between the petitioners and the Bank of Maharashtra and if the petitioners are aggrieved by the said action of the bank their remedy may lie somewhere else but not 13 wp-6409-10 an application under Section 18 of the C.I.C. Act. CIBIL cannot be dragged in the dispute as to whether the Company was wrongly named as a willful defaulter by the bank. In fact in Special Civil Suit No.679 of 2009, in addition to the reliefs for recovery of damages, the relief (xvi) as set out in the plaint reads as follows:- “declare that the plaintiffs are not “defaulters” or “willful defaulters” of the Defendant No.2 in terms of the submissions of the Reserve Bank of India.” Defendant No.2 is the Bank of Maharashtra in the said suit and Defendant No.1 is the Corporation Bank and the Defendant No.5 is the ICICI bank. It is also pertinent to note that no relief has been sought for in this petition against CIBIL and it has not been impleaded as a party. 10. It was urged by Mr. Balsara before us that the petitioners should not be remediless as the circulars issued by the R.B.I., from time to time have not been properly followed by the Bank of Maharashtra and the procedure set out therein before listing any company as a defaulter has not been followed. There may be some merit in these arguments though we do not wish to enter into the merits of the arguments, it cannot be accepted that the 14 wp-6409-10 petitioners are remediless if the application under Section 18 of the C.I.C. Act has been rejected. The remedy of filing a Civil Suit or any other appropriate remedy to challenge the action of the Bank of Maharashtra cannot in any way be taken away or vitiated by the impugned order and as noted earlier the petitioners have already filed a Civil Suit. 11. In the premises there is no case made out to entertain the challenge against the impugned order and hence this petition must fail at the threshold. It is hereby rejected. ( U.D.SALVI, J.) (B. H. MARLAPALLE, J.)