IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE ANTONY DOMINIC MONDAY, THE 25TH JULY 2011 / 3RD SRAVANA 1933 WP(C).No. 17866 of 2011(G) ---------------------------------------- PETITIONER(S): --------------------- GEORGE FRANCIS, AGED 27 YEARS, S/O.FRANCIS ALOYSIUS, KAIPPILLILL HOUSE, NETAJI NAGAR, EDAPALLY, COCHIN-24. BY ADV. SRI.CARLTON THOMAS RESPONDENT(S): --------------------------- 1. STATE BANK OF INDIA, PALARIVATTOM BRANCH, CIVIL LANE ROAD, PALARIVATTOM, REPRESENTED BY ITS CHIEF MANAGER, PIN-682 025. 2. CHIEF MANAGER, STATE BANK OF INDIA, PALARIVATTOM BRANCH, CIVIL LANE ROAD, PALARIVATTOM, PIN-682 025. 3. CHIEF GENERAL MANAGER, STATE BANK OF INDIA, S.S.KOVIL ROAD,TRIVANDRUM, PIN-695 001. 4. ASSISTANT GENERAL MANAGER (SANCTION), RETAIL ASSETS, CENTRALISED PROCESSING CENTRE, VANKARATH BUILDING, PALARIVATTOM,PIN-682 025. 5. CHIEF MANAGER (SANCTION), RACPC, VANKARATH BUILDING, PALARIVATTOM,PIN-682 025. 6. UNION OF INDIA REPRESENTED BY MINISTRY OF HUMAN RESOURCES, NEW DELHI, PIN-110 001. 7. STATE OF KERALA, REPRESENTED BY CHIEF SECRETARY, GOVERNMENT OF KERALA, SECRETARIAT,TRIVANDRUM, PIN-695 001. R1 TO R5 BY ADV. SRI.R.S.KALKURA, SC SRI.P.V. SURENDRANATH, SC R6 BY ADV. SRI.P.PARAMESWARAN NAIR,ASG OF INDIA R7 BY GOVERNMENT PLEADER SMT. RAJASREE THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 25/07/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Kss WPC.NO.17866/2011 G APPENDIX PETITIONER'S EXHIBITS: P1: COPY OF APPLICATION DTD. 17/06/2011 SUBMITTED BY THE PETITIONER BEFORE THE 1ST RESPONDENT. P2: COPY OF THE TITLE DEEDS SUBMITTED BY THE PETITIONER BEFORE 1ST RESPONDENT. P3: COPY OF THE LEGAL OPINION ISSUED BY THE 1ST RESPONDENT BANK TO PETITIONER. P4: COPY OF REJECTION LETTER DTD. 28/06/2011 ISSUED BY THE 2ND RESPONDENT TO THE PETITIONER. P5: COPY OF THE ADMISSION LETTER FROM THE MISSOURI UNVERSITY OF SCIENCE AND TECHNOLOGY. P6: COPY OF THE CERTIFICATE ISSUED BY THE VILLAGE OFFICER, ASAMANNOOR DTD. 2/07/2011. P7: COPY OF PRIOR TITLE DEED OF EXHIBIT P2. P8: COPY OF STATEMENT ISSUED BY ADDITIONAL THASILDHAR OF KUNNATHANADU TALUK DTD. 16/05/2011. RESPONDENT'S EXHIBITS: R5(A): COPY OF THE VALUATION REPORT SUBMITTED BY THE INDEPENDENT VALUER DTD. 20/06/2011. R5(B): COPY OF RELEVANT PAGES OF THE BANK'S LOAN SCHEME AS CONTAINED IN THE MANUAL ON LOANS AND ADVANCES PART IV. R5(C): COPY OF MASTER CIRCULAR NO.957/2010-2011 DTD. 15TH FEB.2011. /TRUE COPY/ P.S.TO JUDGE Kss ANTONY DOMINIC, J. ================ W.P.(C) NO. 17866 OF 2011-G ===================== Dated this the 25th day of July, 2011 J U D G M E N T Petitioner is a B.Tech Graduate, whose parents are retired Government Servants. 2. Petitioner got himself enrolled in the Missouri University of Science and Technology, USA for Engineering Management (Industrial Engineering). By Ext.P1 application, he applied to the 1st respondent for an education loan of `20 lakhs. Along with the application he also submitted title deeds of the properties of his mother, which were offered as collateral security. Ext.P3 is the legal opinion obtained on the property offered as collateral security, which says that the petitioner’s mother is having a clear, valid and marketable, defect free title over the property. 3. Ext.R5(a), produced along with the counter affidavit filed by respondents 1 to 5 is the valuation report submitted by the valuer appointed by the Bank. In the report, nature of the property has been described as ‘Residential and Agriculture’. W.P.(C)No.17866/2011 (G) :2 : Further, it is also certified that the market value of the land having an extent of 136.399 cents and the building is `81,84,000/-. 4. Finally, by Ext.P4 communication dated 28.6.2011, the Bank informed the petitioner that his application has been rejected as the collateral security offered is "Agricultural Property". This communication reads as under: “We regret to inform you that your application for Student loan of Rs.20,00,000/- (Rupees twenty lakhs only) has been rejected by our loan Processing Cell as the collateral security offered, is land planted with Teak, and hence not acceptable (Agricultural property). 02. All the documents submitted by you are returned herewith. Kindly acknowledge on the duplicate of this letter.” 5. It is thereupon the petitioner has filed this writ petition seeking to quash Ext.P4 and to direct the respondents to grant the education loan as requested in Ext.P1. Contention of the petitioner is that rejection of his application for education loan is absolutely illegal and that at any rate the fact that the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 cannot be enforced W.P.(C)No.17866/2011 (G) :3 : against agricultural land in the event of default, can be no reason for refusing to accept the security offered. 6. Respondents 1 to 5 have filed a counter affidavit. They have no dispute regarding the receipt of application or the bonafides of the request or the clear and marketable title of the collateral security offered or the value of the property as certified by the valuer appointed by the Bank. It is contended that the property offered by the petitioner as security for the loan was an agricultural property as per the valuation report. According to them, the 1st respondent bank has issued a book of instructions manual on Loans and Advances which has been in force from 31.03.2004 and that in the said Manual it has been made clear that security for loan against mortgage of immovable property should be as follows:- “4.1 Equitable mortgage of non-encumbered residential house/ flat, non-agricultural urban landed property, commercial or industrial property in the name and possession of the borrower, i.e. either self-occupied or vacant. An undertaking vide Annexure-Mortgage/8 should be obtained. 4.2 Land/ plot should be non-agricultural only. In case of conversion of agricultural land to non-agricultural (NA), W.P.(C)No.17866/2011 (G) :4 : a photocopy of the relative order should be obtained and kept on record. The search report, to be obtained in each case from the Bank’s panel/ approved advocate, should certify the property as clear, unencumbered and marketable, and also confirm the fact of conversion of land/ plot to NA, (if any).” The relevant portion of the Manual of Loans and Advances has been produced as Ext.R5(b). 7. Ext.R5(c), is the Master Circular governing SBI Education Loan Scheme and referring to the said document it is stated that for loans above `7.5 lakhs, co-obligation of parents together with tangible collateral security of suitable value in the form of land, building, government securities etc., is required to be furnished. Recommended margin is also specified in Clause 15 (1) of Ext.R5(c). According to the Bank the application of the petitioner was processed in the light of the aforesaid guidelines and there is nothing illegal in its rejection. 8. I have considered the submissions made. 9. The only question that arises for consideration is whether rejection of the petitioner’s application for education loan of `20 lakhs is consistent with the SBI Education Loan Scheme. Along W.P.(C)No.17866/2011 (G) :5 : with its counter affidavit, the respondent has produced as Ext.R5 (c), the Master Circular, SBI Education Loan Scheme (SBI Student Loan Scheme). This Circular is issued by the Personnel Loan Department of the Bank on February 15, 2011. The covering letter issued by the Chief General Manager (Personal Banking) dated 15.02.2011, says that the Master Circular incorporates all existing guidelines/ instructions/ directives upto 31.01.2011. It is also stated that individual circulars consolidated are listed in the appendix. This letter reads as under: “We have periodically, issued instructions to Branches/LHOs and other establishments with regard to Education Loans. A Master Circular incorporating all the existing guidelines/ instructions/ directives has been prepared and is appended. This Master Circular consolidates all the instructions issued upto 31st January 2011 by us from time to time. The indidividual circulars consolidated now are listed in the Appendix”. 10. In the Master Circular it is stated that the purpose that the scheme seeks to achieve is to extend financial assistance to deserving / meritorous students for pursuing higher education in India and abroad. Among the various provisions contained in the W.P.(C)No.17866/2011 (G) :6 : Scheme, clause 14 deals with the security to be offered for loans. As far as the loans above `7.5 lakhs are concerned, co-obligation of parents together with ‘tangible collateral security of suitable value’ along with assignment of the future income of the student for payment of instalments, is one of the requirements. Clause 15 provides for the Security and Recommended Margins Against Security. This clause of the Scheme being relevant, reads as under: “15. SECURITY AND RECOMMENDED MARGINS AGAINST SECURITY  The security can be in the form of land/ building/ Govt. Security/ Public Sector Bonds/ Units of UTI, NSC, KVP, LIC policy, gold, shares/ debentures, bank deposit in the name of student/ parent/ guardian or any other third party.  The recommended margins for type of security is as under: (i) Land & Building – 10% (ii) Govt. Securities, Public Sector Bonds, NSCs, Bank Deposits, RBI Relief Bonds etc – NIL, Face value of the security/ bond to be reckoned as value of security, (iii) LIC Policies – Surrender Value  Wherever the land/ building is already mortgaged, the unencumbered portion can be taken as security on IInd charge provided it covers the required loan amount. We clarify that a second charge on the property can be W.P.(C)No.17866/2011 (G) :7 : accepted provided the market value thereof, as per acceptable current valuation, is adequate to cover our loan also after providing for liability towards the 1st mortgage.  In case the loan is given for purchase of computer the same to be hypothecated to the Bank.  All charges in connection with valuation of property, search report from Bank Advocate and Stamp duty etc., to be borne by the borrower.” The other provisions of the circular are not relevant for the purposes of this judgment. 11. As already stated the case of the bank is that as per Ext.R5(b), the Manual of Loans and Advances, the security offered should be non-agricultural landed property and the only reason stated in Ext.P4 for rejecting the application was that the security offered by the petitioner is ‘an Agricultural Property’. In my view, the rejection of the application is absolutely arbitrary and is liable to be interfered with. As already seen Ext.R5(c), Master Circular for Education Loan, shows that all existing guidelines, instructions and directives, governing Education Loan Scheme are consolidated in the said Circular. The said Circular provides for receipt of application, the eligibility of the students, the security to be offered, the time limit within which the W.P.(C)No.17866/2011 (G) :8 : applications are to be processed and all other instructions governing the loan scheme. A reading of Ext.R5(c) shows that, as far as the Bank is concerned, this is a self contained code and an application for education loan is to be processed in the manner as provided in Ext.R5(c) Master Circular. The appendix to the Master Circular also contains the list of 57 Circulars consolidated in the Master Circular. 12. None of the provisions of Ext.R5(c) Master Circular provide that Ext.R5(b), Manual of Loans and Advances, is to be followed in the case of an application made for education loan. Appendix to Ext.R5(c) also does not mention Ext.R5(b). Therefore as far as an application for education loan is concerned, the application should be processed and dealt with entirely in terms of Ext.R5(c) Master Circular and Ext.R5(b) Manual has no relevance. 13. Clause 15 of Ext.R5(c) Master Circular, which prescribes the Security and Recommended Margins provide that security can be in the form of land/building/government securities etc. This provision does not say that the land to be offered or accepted as security for education loan; should be non W.P.(C)No.17866/2011 (G) :9 : agricultural land, unlike in the case of the loans which are governed by Ext.R5(b). If that be the case, so long as Ext.R5(c) Master Circular only provides for security in the form of land, there is absolutely no justification for giving the provisions of the scheme a perverse interpretation and to reject the security offered by the petitioner, even if it is assumed that the same is agricultural property as contended by the respondents. Therefore, this was a case where the bank has illegally rejected the petitioner’s application for education loan on extraneous and irrelevant considerations. 14. As already stated it is the specific case of the petitioner that the rejection of the security offered by him on the ground that it is an agricultural property is for the reason that the agricultural properties stand excluded from the purview of the Securitisation Act by virtue of Section 31(i) thereof. This averment of the petitioner is not denied in the counter affidavit and therefore has to be taken as admitted. Further, even during the arguments, learned counsel for the Bank could not state any other valid reason. In my view the fact that the Securitisation Act excludes agricultural property from its purview, could not W.P.(C)No.17866/2011 (G) :10 : have been a reason for rejection of the loan application of the petitioner. Therefore rejection of the application for such a reason also cannot be sustained. In any case, in view of my finding that the rejection is illegal, I do not think I need pronounce on this issue, finally. 15. Ext.R5(c) shows the anxiety of the government and the Indian Banks' Association to see that loan is given to all deserving applicants. In fact, in Clause 40 of Ext.R5(c), it is stated thus:- "The Hon'ble Finance Minister appealed to the banks to accommodate the student community and to consider and process the loan applications and not reject any loan application without valid grounds. IBA has advised the member banks to implement the guidelines under the education loan scheme in the right perspective and as far as possible not to reject any genuine requests and try to accommodate the student community as far as possible within the broad framework of the scheme". 16. Such intention of the government is virtually defeated by public sector banks like the 1st respondent, by their ingenious interpretation and adopting methods like the one adopted in this case. Such attitude virtually defeats the very scheme itself and W.P.(C)No.17866/2011 (G) :11 : therefore should be condemned. Further, I also take serious note of the attempt made by the respondents, particularly the 5th respondent, who has sworn to the counter affidavit, to justify their illegal act by attempting to mislead this court relying on Ext.R5(b) which has no relevance in the context of an application for an education loan. I say so for the reason that when the counsel for the Bank was asked to explain the basis on which they were relying on Ext.R5(b), in the absence of any enabling provision in Ext.R5(c) scheme, he had no satisfactory answer. Respondent deserve to be proceeded against not only for filing, if not false, atleast a deliberately misleading affidavit before this Court and for their aforesaid conduct of defeating a very laudable scheme framed by the Government of India, I refrain from doing so, hoping that they will not repeat it in future. 17. Ordinarily in a case of this nature, the bank should have been asked to reconsider the application. However, on the facts of this case, such a course is unnecessary. As already seen bank has no dispute about the genuineness of the application or title of the property offered as security and the bank is not disputing the entitlement of the petitioner in any manner. W.P.(C)No.17866/2011 (G) :12 : Further, value of the property as assessed by the Bank's valuer is `81,84,000/- which is several times above the margin prescribed in Clause 15 of Ext.R5(c) Master Circular. On the other hand, rejection of the application was only for the reason that the security offered is an ‘Agricultural Property’. 18. In the light of the above and also taking note of the averment in the writ petition that the petitioner has to join the university on 08.08.2011 or else his admission will be cancelled, I issue the following directions. (i) Ext.P4 letter dated 28th June 2011, rejecting the petitioner’s application for Education Loan of `20 lakhs is quashed. (ii) Petitioner will resubmit the documents returned along with Ext.P4 to respondents 1 and 2 together with a certified copy of the judgment. It is directed that on receipt of the documents from the petitioner, the loan applied for by the petitioner shall be sanctioned and the petitioner and the coobligants will be permitted to execute necessary W.P.(C)No.17866/2011 (G) :13 : documents and loan amount applied for shall be disbursed. (iii) The aforesaid process shall be completed within 7 days of receipt of the documents as directed in (i) above. Writ petition is disposed of as above. ANTONY DOMINIC, JUDGE Rp