Case: Salim Akbarali Nanji Vs. Union Of India

therefore, entitled to invoke the writ jurisdiction of the High Court for issuance of Writ of Mandamus to the Reserve Bank of India to act in accordance with its statutory obligations. In this connection, reference has been made to Sections 21, 22(4), 27, 30, 35, 35A, 36, 36AA, and 45 of the Banking Regulation Act, 1949. 18. Section 21 of the Banking Regulation Act empowers the Reserve Bank to determine the policy in relation to advances to be followed by banking companies generally, or by any banking company in particular. The policy, if so, determined by the Reserve Bank of India in public interest or in the interest of depositors or banking policy, must be followed by all banking companies. In the instant case there is no material whatsoever to demonstrate that the Reserve Bank of India has failed to exercise its powers under Section 21 of the aforesaid Act, nor is there anything to prove that the Respondent No.6 Bank herein has not followed any policy so determined by the Reserve Bank of India. 19. Section 22 (4) of the aforesaid Act empowers the Reserve Bank of India to cancel a licence granted to a banking company in the circumstances mentioned therein. We fail to understand how the said provision is at all relevant since it is not the case of the appellant that the licence granted to the Respondent No.6 Bank should be cancelled. 20. Section 27 casts an obligation on every banking company to submit to the Reserve Bank a return in the prescribed form and manner showing its assets and liabilities in accordance with the aforesaid provision. The Reserve Bank is also authorized at any time to direct a banking company to furnish it such statements and information relating to the business or affairs of the banking company as it may consider necessary or expedient to obtain for the purposes of the Act. We fail to understand how Section 27 is at all relevant in the instant case because it is not the case of the appellant, nor has any material being placed on record to show, that there has been breach of Section 27 of the aforesaid Act. 21. Similarly, Section 30 which deals with audit of the balance sheet and profit and loss account of a banking company by a qualified auditor is not at all relevant. Sub-Section (1B) of Section 30 empowers the Reserve Bank to order a special audit. In the instant case we are not concerned at all with the appointment of auditors. 22. Section 35 relates to inspection of banking companies. It empowers the Reserve Bank to cause an inspection to be made by one or more of its officers of any banking company and its books and accounts. 23. Section 36 enumerates the other powers and functions of the Reserve Bank. Similarly Section 36AA empowers the Reserve Bank to remove from office any Chairman, Director, Chief Executive Officer or other officer or employee of the banking company, subject to the conditions laid down in that provision. 24. Section 45 confers power on the Reserve Bank to apply to the Central Government for suspension of business by a banking company and to prepare scheme of reconstitution or amalgamation. We fail to appreciate how any of these provisions is relevant to the issue that arises in the instant appeal. No doubt, the Reserve Bank has been vested with wide powers to control and regulate the functioning of banks. If need be, those powers may be exercised by the Reserve Bank. In the instant case, we are only concerned with the writing off of non-performing assets. Nothing has been produced on record to satisfy us that the Reserve Bank has acted in breach of its legal obligations in the matter of granting permission to the Respondent No.6 Bank to write off the debts that have become non-performing assets. 25. 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. 26. 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 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 mala-fide. In a given case, there may be evidence of such mis-management 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.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]14. In the instant case also since the Respondent No.6 Bank proposes to appropriate the sums from their reserves, it sought by way of abundant caution the approval of the Reserve Bank of India. There is, therefore, no justification for the grievance that in granting approval to the bank to write off its non-performing assests to the tune of Rs.120 crores, the Reserve Bank of India committed breach of any statutory provision or acted illegally or arbitrarily in the matter. There is not even an allegation that the Reserve Bank of India acted on extraneous consideration, or that its action was mala-fideIn the instant case there is no material whatsoever to demonstrate that the Reserve Bank of India has failed to exercise its powers under Section 21 of the aforesaid Act, nor is there anything to prove that the Respondent No.6 Bank herein has not followed any policy so determined by the Reserve Bank of India19. Section 22 (4) of the aforesaid Act empowers the Reserve Bank of India to cancel a licence granted to a banking company in the circumstances mentioned therein. We fail to understand how the said provision is at all relevant since it is not the case of the appellant that the licence granted to the Respondent No.6 Bank should be cancelled20. Section 27 casts an obligation on every banking company to submit to the Reserve Bank a return in the prescribed form and manner showing its assets and liabilities in accordance with the aforesaid provision. The Reserve Bank is also authorized at any time to direct a banking company to furnish it such statements and information relating to the business or affairs of the banking company as it may consider necessary or expedient to obtain for the purposes of the Act. We fail to understand how Section 27 is at all relevant in the instant case because it is not the case of the appellant, nor has any material being placed on record to show, that there has been breach of Section 27 of the aforesaid Act21. Similarly, Section 30 which deals with audit of the balance sheet and profit and loss account of a banking company by a qualified auditor is not at all relevant. Sub-Section (1B) of Section 30 empowers the Reserve Bank to order a special audit. In the instant case we are not concerned at all with the appointment of auditors24. Section 45 confers power on the Reserve Bank to apply to the Central Government for suspension of business by a banking company and to prepare scheme of reconstitution or amalgamation. We fail to appreciate how any of these provisions is relevant to the issue that arises in the instant appeal.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