Case: Pramod Malhotra &amp; Others Vs. Union of India &amp; Others

the depositors’ funds were safe and properly managed. Thus, the facts of this case were also identical to the facts of the present case. Such a claim was not accepted. It was held that relationship between the plaintiffs and defendants was not such that it would be just and reasonable to impose the liability in negligence for the loss suffered by the plaintiffs. It was held that the Board and the Treasurer were exercising typical functions of modern Government in the general public interst which included balancing of competing considerations. It was held that the defendants did not possess sufficient control over the management of the Bank to warrant imposition of liability. The principles laid down in Ann’s case were held not applicable to financial transactions.23. Mr. Sorabjee also relied upon the case of Three Rivers DC v. Bank of England reported in (2000) 3 All England Law Reports 1, and in (2001) 2 All England Reports 513. This again was a case wherein the Bank of England had granted a licence to the BCCI to carry on business as a deposit taking institution. BCCI collapsed in 1991 owing to fraud on a vast scale. Several thousand depositors brought proceedings against the Bank of England seeking recovery of their sums when BCCI collapsed. In that case it was pleaded that the Officers of the Bank of England had acted in bad faith by licensing BCCI when they knew that to do so was unlawful and that the Officers had shut their eyes to what was happening with BCCI after granting the licence and had failed to take steps to close BCCI at least by mid-1980s. On a preliminary issue the trial Judge struck out the claim. The House of Lords held that this could not have been done at the preliminary stage and remitted the matter back for trial. But, while so doing, it accepted the principles laid down in the case of Davis v. Radcliffe. Thereafter in the same case, while remitting the matter back, the House of Lords held that the essential elements should be as follows: “First, there must be an unlawful act or omission done or made in the exercise of power by the public officer. Second, as the essence of the tort is an abuse of power, the act or omission must have been done or made with the required mental element. Third, for the same reason, the act or omission must have been done or made in bad faith. Fourth, as to standing, the claimants must demonstrate that they have a sufficient interest to sue the defendant. Fifth, as causation is an essential element of the cause of action, the act or omission must have caused the claimants’ loss.” 24. Mr. Sorabjee submitted that in the present case there are no averments. He submitted that even if there were averments these are not matters which could be gone into in writ jurisdiction as it would require extensive evidence. He submitted that these are matters in which the Court could not pass any order in exercise of its writ jurisdiction. 25. We have heard the submissions of both the parties. Whilst we sympathise with the depositors for their loss, we are unable to accept the submission of Mr. Lalit that the principles laid down in cases relating to breach of Article 21 rights can be applied to cases of loss caused in financial transactions undertaken by individuals with open eyes. In our view the principles laid down in the cases of Yuen Kun-yeu v. A-G of Hong Kong and Davis v. Radcliffe are fully applicable. In our view the principles laid down in Ann’s case have no application to financial transactions. RBI is undoubtedly performing a statutory function. Undoubtedly the general public interest has to be kept in mind by RBI. But that is not the only thing they have to keep in mind. They also have to balance general public interest with the interests and need of Banks and Financial Institutions. They cannot easily close down a Banking Institution merely because there are a few irregularities. They have to keep in mind the implications of closing a Bank or a financial institution. A closing of a Bank or financial institution has its impact not just on that Bank/financial institution and its customers and debtors but on the future of financial services in that region. Thus competing interests have to be weighed and balanced. In hindsight it is easy to point fingers. However at that stage it would not have been an easy decision for RBI to have closed SBL when it was a major Bank in a small State like Sikkim. One may criticize the decision of RBI to grant SBL a licence to open a Branch in Delhi when the licence under Section 22 had not yet been granted. But still that will not be sufficient to foist liability on RBI to repay all depositors. What the petitioners want is to foist on RBI liability for the default of SBL. Such liability will be rarely imposed. RBI did not have day-to-day management or control on SBL. Also the relationship of RBI with creditors or depositors of SBL is not such that it would be just or reasonable to impose a liability in negligence on RBI.26. Even otherwise we find that there are no proper averments. There is absolutely no averment regarding bad faith. It was fairly admitted by Mr. Lalit that there is no case made out on the basis of public misfeasance. He fairly stated that at the highest the case could only be that of a violation of statutory duties. However, as observed above, compensation for violation of a statutory duty to enable individuals to recoup financial loan has never been recognized in India. In our view the petitioners having chosen on their own to deposit amounts with the SBL cannot claim to recover against RBI. In such a case the loss has to be allowed to fail where it falls.

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

Explanation:
0[ds]20. Mr. Sorabjee submitted, and in our view correctly, that the Indian cases relied upon by Mr. Lalit are all cases which relate to infringement of life and liberty under Article 21 i.e. where a person has been injured or killed. It is in those types of cases that the above mentioned principles have been applied in India. Mr. Sorabjee pointed that Mr. Lalit was not able to show any case where these principles have been applied to financial transactions undertaken by individuals with open eyes in the hope of making larger profits. He submitted that except for a few stray averments in the petition there was no averment that by issuing licence RBI represented that SBL was sound and creditworthy.We have heard the submissions of both the parties. Whilst we sympathise with the depositors for their loss, we are unable to accept the submission of Mr. Lalit that the principles laid down in cases relating to breach of Article 21 rights can be applied to cases of loss caused in financial transactions undertaken by individuals with open eyes. In our view the principles laid down in the cases of Yuenof Hong Kong and Davis v. Radcliffe are fully applicable. In our view the principles laid down incase have no application to financial transactions. RBI is undoubtedly performing a statutory function. Undoubtedly the general public interest has to be kept in mind by RBI. But that is not the only thing they have to keep in mind. They also have to balance general public interest with the interests and need of Banks and Financial Institutions. They cannot easily close down a Banking Institution merely because there are a few irregularities. They have to keep in mind the implications of closing a Bank or a financial institution. A closing of a Bank or financial institution has its impact not just on that Bank/financial institution and its customers and debtors but on the future of financial services in that region. Thus competing interests have to be weighed and balanced. In hindsight it is easy to point fingers. However at that stage it would not have been an easy decision for RBI to have closed SBL when it was a major Bank in a small State like Sikkim. One may criticize the decision of RBI to grant SBL a licence to open a Branch in Delhi when the licence under Section 22 had not yet been granted. But still that will not be sufficient to foist liability on RBI to repay all depositors. What the petitioners want is to foist on RBI liability for the default of SBL. Such liability will be rarely imposed. RBI did not havemanagement or control on SBL. Also the relationship of RBI with creditors or depositors of SBL is not such that it would be just or reasonable to impose a liability in negligence on RBI.26. Even otherwise we find that there are no proper averments. There is absolutely no averment regarding bad faith. It was fairly admitted by Mr. Lalit that there is no case made out on the basis of public misfeasance. He fairly stated that at the highest the case could only be that of a violation of statutory duties. However, as observed above, compensation for violation of a statutory duty to enable individuals to recoup financial loan has never been recognized in India. In our view the petitioners having chosen on their own to deposit amounts with the SBL cannot claim to recover against RBI. In such a case the loss has to be allowed to fail where it falls.