1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO.553 OF 2004 IN COMPANY PETITION NO.109 OF 2004 Shri.Salim Akbarali Nanji. ...Appellant vs. 1.Development Credit Bank Ltd. and another. ...Respondents --- Appellant in person present. Dr.V.V.Tulzapurkar with Mr.Praveer Shetty & Ms.Anjali Deshmukh, for Respondents. --- CORAM: D.K.DESHMUKH & A.A.SAYED, JJ. DATED: 22nd January, 2009. P.C.:- 1. By this appeal, the appellant challenges the 2 order passed by the learned Single Judge of this Court whereby the learned Single Judge has approved the scheme submitted by the Company seeking approval of the Court to the implementation of Special Resolution dated 23.1.2004 passed in extraordinary general meeting of the petitioner-company for reduction in Securities Premium Account by a sum of Rs.62,44,88,160/- and for taking further steps in the matter. Only one objection was received to the scheme and that was from the appellant. The learned Single Judge has considered the objection raised by the appellant in detail and has rejected the same. 2. We have heard the appellant. The Development Credit Bank Ltd. had approached the Court with the case that in order to consolidate the functioning of the Bank and to work out a growth plan, the management of the bank has proposed to restructure and prioritize recovery of non-performing advances to borrowers which are in the sum of Rs.62,44,88,160/- which is proposed to be written off from the Securities Premium Account against non-performing advances/bad debts. For that purpose, the bank got 3 the matter examined by their statutory Auditors and got the certificate issued. The certificate states that the Statutory Auditor has verified the annexed list of non-performing advances and investments proposed for writing off aggregating to Rs.62.45 crores as on 30.9.2003 and on the basis of the examination of records and information and explanation furnished to them by the bank, they have certified that the said amount can be written off in the books of accounts and the management's decision for utilising the amount standing to the credit of “Securities Premium Account” for write off shall be in accordance with the provision of the Companies Act. Thereafter, a Resolution was passed by the Board of Directors of the Bank on 23.1.2004, A.G.M. Was called on 23.1.2004 and a Special Resolution was passed resolving to utilise the balance lying in the Securities Premium Account for the purpose of writing off of the non-performing advances/bad debts resulting in reduction of the Securities Premium Account. The bank also complied with the formalities by submitting the Special Resolution by filing it with the Registrar of Companies and thereafter, this 4 the bank had approached to this Court for its sanction. As observed above, the learned Single Judge has found that the bank has complied with the requirements of law. The learned Single Judge has also found that the action of the bank is for the benefit of the creditors and minority shareholders. It is found that the objector was not able to point out any illegality in the proposed action of the Bank and therefore, the learned Single Judge has made the order. It appears that the order of the learned Single Judge was only in relation to the amount of Rs.62.45 crores but the bank had written off the debts amounting to Rs.120 crores and approval was granted to the proposal of the bank to write off the debts amount to Rs.120 crores by the Reserve Bank of India. A writ petition was filed in this Court by the appellant challenging the approval granted by the Reserve Bank of India that was Writ petition no.2199 of 2003. That writ petition was dismissed by this Court. Against that order, Civil appeal no.6715 of 2004 was filed in the Supreme Court. That appeal has been decided by the Supreme Court by its order dated 11.5.2006. The Supreme Court has considered the 5 objections raised by the appellant to the action of the bank of writing off the debts, in detail. The Supreme Court has observed in its judgment thus:- “It was further explained that the write off is an internal accounting procedure to clean up the balance sheet of the Bank. Such write off is resorted to even in cases where the Bank has not exhausted all the avenues for recovery of dues. Such write off does not affect the right of the Bank to proceed against the borrowers to collect the dues. The legal proceedings initiated by the Bank to recover the loans or to enforce the security against the borrowers may continue. The write off does not bar the Bank from following up recoveries. Further recoveries, if any, in these accounts are credited to the income account, in turn improving the net worth of the Bank. Replying to the Petitioner's allegation that the Reserve Bank had failed to exercise its statutory powers and authority of law against the Bank under the various provisions of the Banking Regulation Act,1949 to restrain it from taking any 6 steps or acting in furtherance to write off the secured debts of the sum of Rs.120 crores, which is detrimental to the interests of the Bank, its depositors, investors and shares holders, it was submitted that the banking companies do not need Reserve Bank's permission to write off bad debts. As mentioned earlier, the banking companies are also not under statutory obligation to seek the Bank's approval for appropriation of sums from their reserves. However, as a matter of practice, the banking companies do approach the Reserve Bank for permission, before utilizing their reserves, for writing off the bad debts and the Reserve Bank grants approval, if it is in order, on considering their financial position and other related factors as stated above.” It is thus clear that the step of writing off the debts was to clean up the balance-sheet of the bank. So far as the instant matter is concerned, the Supreme Court has considered the objections specifically raised by the appellant to the action of the bank of writing off the bad debts and has 7 observed thus:- “The appellant made a general submission that there was no justification for writing off the bad debts amounting to Rs.120 crores. Respondent No.6 Bank should have taken all necessary steps to recover the debts and to enforce its rights under Sections 13 and 14 of the Securitisation Act,2002 and Sections 19 and 31A of the Recovery of Debts due to Bank Act,1993. The Bank can proceed against the original security and the secured assets of the borrowers and recover its dues. Writing off bad debts was detrimental to the interest of a banking company. It is no doubt true that amounts advance by banks must be recovered. Such debts should not be permitted to become non-performing assets. However, one cannot lose sight of the realities of the situation. Having regard to the nature of banking business, it is possible that the Bank may commit an error of judgment in advancing funds to a particular party or industry. It may be that on account of other factors beyond its control, or even beyond the 8 control of the borrowers, it may become difficult, or even impossible to recover the loan advanced in accordance with the schedule of re-payment, or to recover the loan at all. These are risks inherent in the banking business, though a wise banker with foresight and anticipation may reduce such risks to the minimum level. One cannot however, jump to the conclusion that only because some of the debts have become bad, there is lack of proper management of the Bank, or that the conduct of the Bank is dishonest or malafide. In a given case, there may be evidence of such mismanagement or dishonest conduct, but in the absence of any such accusation one cannot draw an adverse inference against the Bank. In the instant case, though some of the debts have to be written off, with little chance of substantial recovery, we cannot lose sight of the fact that the Bank has generated considerable operating profits and has built up a substantial general reserve over the years, against which the debts written off have been adjusted. The Supreme Court thus dismissed the appeal. Really 9 speaking in view of the judgment of the Supreme Court, referred to above, nothing survives in this appeal because the entire issue has been considered by the Supreme Court. It is further pertinent to be noted that in this appeal initially an interim order was made by the Division Bench. However, after the order of the Supreme Court, referred to above, an application was moved for modification or vacating that order. That application was decided by the Division Bench by order dated 23.3.2007. The Division Bench relying on the judgment of the Supreme Court, referred to above, has held that the Supreme Court has affirmed the right of the bank to write off bad debts which is a regular exercise undertaken to cleanse the balance sheet, and in view of the judgment of the Supreme Court, has modified the interim order which modification was sought by the Bank. That order was not challenged by the appellant. Thus, the debts which were subject matter of the petition before the learned Single Judge have already been written off. In our opinion, therefore, there is no substance in the appeal. Appeal, therefore, fails and is dismissed. The appellant is directed to pay as 10 and by way of cost of this appeal Rs.10,000/- to the respondents. (D.K.DESHMUKH, J.) (A.A.SAYED,J.) ---