IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.BHAVADASAN MONDAY, THE 21ST NOVEMBER 2011 / 30TH KARTHIKA 1933 AS.No. 401 of 1995(D) --------------------------- AGAINST THE ORDER DATED 25/01/1995 IN OS.117/1992 of SUB COURT, KASARAGOD .................... APPELLANT(S): PLAINTIFF ------------------------------- SYNDICATE BANK, MULLERIA BRANCH THROUGH ITS MANAGER. BY ADVS. SRI.U.P.KUNIKULLAYA SRI.R.S.KALKURA RESPONDENT(S): DEFENDANTS ------------------------------------- 1. SMT. K. CHANDRAVATHY, AGED ABOUT 36 YEARS, W/O. NO.2 M. SRIDHARA RAO. 2. M. SRIDHARA RAO, AGED ABOUT 38 YEARS, S/O. DEVOJI RAO. BOTH ARE HINDUS, AGRICULTURISTS, RESIDING AT PALEKOCHI HOUSE, KAKKEBETTU IN NETTANIGE VILLAGE, P.O. KAKKEBETTU, KASARAGOD TALUK. BY ADV. SRI.GOURI SANKAR RAI THIS APPEAL SUITS HAVING BEEN FINALLY HEARD ON 21/11/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: svs P.BHAVADASAN, J. - - - - - - - - - - - - - - - - - - - - A.S.No.401 of 1995 - - - - - - - - - - - - - - - - - - - - - - - Dated this the 21st day of November, 2011 J U D G M E N T A nationalized Bank who failed to secure a decree against the 2nd defendant has come up in appeal. 2. The 1st defendant is alleged to have borrowed a sum of Rs.25,000/- under a scheme(CSL/SEUY/12/86) dated 17.02.1986 for which the 2nd defendant shown as a surety. The necessary documents were executed. The loan amount was to be repaid with 10% interest. As the debt was not discharged the suit was laid. 3. The defendant resisted the suit. It was pointed out by them that the 1st defendant had availed of the loan for the self employment purposes and for that scheme the Bank could not procure collateral security or guarantee. This would be clear according to the defendants from the circular issued by the Reserve Bank of India. It is therefore contended that, at any rate, the 2nd defendant is not liable for the same. :2: A.S.No.401 of 1995 4. On the basis of the above pleadings issues were raised. The evidence consists of Exts.A1 to A15 from the side of the plaintiff and Exts. B1 and B2 from the side of the defendants. 5. On an evaluation of the materials before it, the trial court found that the plea taken by the defendants to the effect that the Bank could not have taken collateral security and the 2nd defendant is not liable for the amount is quite justified in view of Ext.B1. Accordingly a decree for money was passed only against the 1st defendant and 2nd defendant was exonerated. It is the said decree that brings the Bank before this Court. 6. The question arises for consideration is whether the act of the lower court in exonerating the 2nd defendant from liability is justified? 7. The learned counsel appearing for the appellant pointed out that the court below was not justified in relying on Ext.B1, when it was not shown that it was issued under :3: A.S.No.401 of 1995 Section 21 of Banking Regulation Act, 1949 or is covered by Section 35A of the said act. Unless and until it is shown that it satisfies the conditions laid down under section 21 and 35A, the Banks are not bound to give effect to the circular issued by the Reserve bank of India. In the case on hand, there is nothing to show that any of the conditions necessary to apply Section 21 and 35A are available and therefore the court below was not justified in exonerating the 2nd defendant. 8. Section 21 of the Banking Regulation Act reads as follows: Power of Reserve Bank to control advances by banking companies--(1) Where the Reserve Bank is satisfied that it is necessary or expedient in the public interest [or in the interests of depositors] [or banking policy] so to do, it may determine the policy in relation to advances to be followed by banking companies generally or by any banking company in particular, and when the policy has been so determined, all banking companies or the banking company concerned, as the case may be, shall be bound to follow the policy as so determined. (2) Without prejudice to the generality of the power vested in the Reserve Bank under sub-section (1), the Reserve Bank may give directions to banking companies, either generally or to :4: A.S.No.401 of 1995 any banking company or group of banking companies in particular. [as to-- (a).the purposes for which advance may or may not be made (b) the margins to be maintained in respect of secured advances, © the maximum amount of advances or other financial accommodation which, having regard to the paid up capital, reserves and deposits of a banking company and other relevant considerations, may be made by that banking company to any one company, firm, association of persons or individual, (d) the maximum amount up to which having regard to the considerations referred to in clause(c ) , guarantees may be given by a banking company on behalf of any one company, firm, association of persons or individual, and (e) the rate of interest and other terms and conditions on which advances or other financial accommodation may be made or guarantees may be given]. [(3) Every banking company shall be bound to comply with any directions given to it under this section.] 9. Section 35(A) reads as follows: [35A. Power of the Reserve Bank to give directions--(1) where the Reserve Bank is satisfied that -- (a) in the [public interest]; or [(aa) in the interest of banking policy; or] :5: A.S.No.401 of 1995 (b) to prevent the affairs of any banking company being conducted in a manner detrimental to the interest of the depositors or in a manner prejudicial to the interests of the banking company; or © to secure the proper management of any banking company generally; it is necessary to issue directions to banking companies generally or to any banking company in particular, it may, from time to time, issue such directions as it deems fit, and the banking companies or banking company, as the case may be, shall be bound to comply with such directions. (2) The Reserve Bank may, on representation made to it or on its own motion, modify or cancel any direction issued under sub-section (1), and in so modifying or cancelling any direction may impose such conditions as it thinks fit, subject to which the modification or cancellation shall have effect. The Reserve Bank is entitled to give directions to bankers under Section 20(3) of the Foreign Exchange Regulation Act, 1947 blocking certain accounts. Section 20(3) does not contemplate the issue of a prior notice before taking such action under that section. Mohamad Ayisha Nachiyar V. Deputy Director, Enforcement, (1976) 46 Com Cas 653 (Mad) Directions by Reserve Bank cannot prevent payment of higher bonus in terms of the agreement. American Express International Banking Corp.V.S.Sundaram,(1978) 1 SCC (L & S) 34. 10. It is clear from the reading of the above provisions that the circulars and instructions issued by Reserve Bank :6: A.S.No.401 of 1995 of India in public interest, the scheduled Banks are bound to follow. In the case on hand Ext.B1 clearly shows that the circular was issued as a part of the self employment of unemployed educated youth. There is no dispute that that it is under that scheme, the loan was extended to the 1st defendant. If that be so, the other conditions stated in Ext. B1 are binding on the bank. It could not be said that the circular does not cover any of the contingencies contemplated under Section 21 or 35A of the Banking Regulation Act,1949. A reading of the Ext.B1 leaves one in no doubt that it is issued in public interest. If that be so, the decision relied on by the learned counsel for the appellant of High court of Karnataka in Writ Petition No.11556 of 2001 and other connected OPs can have no application to the facts of the case. 11. In the decision reported in Canara Bank V. P.R.N. Upadhyaya and others [1998 KHC 1126 SC] and M/s Sardar Associates and others V. Punjab & Sind Bank and Others :7: A.S.No.401 of 1995 [2009 KC 4895 SC] the apex Court had occasion to deal with the circulars issued by the Reserve Bank of India and it has been held by the apex Court that it was binding on the scheduled banks and they are bound to follow the same. 12. The trial court was therefore perfectly justified in applying the rule as enunciated by the apex Court and holding that Ext.B1 is applicable to the loan on hand. 13. The 2nd defendant was rightly exonerated. No grounds are made out to interfere with the judgment and decree of the court below. This appeal is without merits and is accordingly dismissed. There will be no order as to costs. P.BHAVADASAN, JUDGE kkj