Case: M/S Sardar Associates  Vs. Punjab &amp; Sind Bank

conferred on the Reserve Bank to enable it to exercise effective control over all banks. Sections 21 and 35-A enable it to issue directives in public interest to regulate the charging of interest on loans or advances made from time to time... 38. We may, however, notice that a Division Bench of this Court without noticing the decision of the Constitution Bench in Central Bank of India (supra) in Oriental Bank of Commerce v. Sunder Lal Jain and Another [(2008) 2 SCC 280] opined as under: 8. A perusal of the aforesaid revised guidelines issued by Reserve Bank of India on 29-1-2003 for compromise settlement of chronic non-performing assets (NPAs) of public sector banks will show that the same will be applicable and will cover NPAs classified as substandard as on 31-3-2000 which have subsequently become doubtful or loss. The revised guidelines have no application where the NPAs have not been classified as substandard as on 31-3-2000. It is not in dispute that the account of the respondents was a performing account between 1-4-2000 and 31-3-2001. According to the records of the Bank, the account was consigned to protest bill account on 15-10- 2001 and was declared as NPA as per prudential norms of RBI on 31-3-2001. The respondents contested the case before DRT and did not admit their liability. No such plea was raised that their account had become NPA as on 31-3-2000 before DRT. Therefore, the revised guidelines issued by Reserve Bank of India on 29-1-2003 for compromise settlement of chronic non-performing assets (NPAs) of public sector banks were not at all applicable to the facts and circumstances of the case and no direction could be issued to declare the respondents account as NPA from 31-3-2000. 39. Judicial discipline mandates the bench comprising of two Judges to follow the judgments of the Constitution Bench having regard to Article 141 of the Constitution of India. 40. If in terms of the guidelines issued by the Reserve Bank of India a right is created in a borrower, we see no reason as to why a writ of mandamus could not be issued. We would assume, as has been contended by Mr. Singh, that while exercising its power under Article 226 of the Constitution of India, the High Courts may or may not issue such a direction but the same, in our opinion, by itself, would not mean that the High Court would be correct in interfering with an order passed by the Appellate Tribunal which was entitled to consider the effect of such one time settlement. 41. The question pertaining to the present matter is regarding whether or not a circular issued by a statutory body for the governance and regulation of certain agreements confers a legal right upon the aggrieved party in case of non-compliance or complete and absolute deviation from the said guidelines by the body formulating such circulars. Alternately, can the aggrieved party, then, claim its right of judicial review under Article 32 or 226 to quash the said circular in case of discriminatory application of such rules/guidelines so mentioned in the circular. 42. In Union of India and Anr. v. Azadi Bachao Andolan and Anr [(2004) 10 SCC 1] , it was held that a circular issued by the Central Board of Direct Taxes(CBDT) was not inconsistent with the provisions of the Income-Tax Act and was valid and efficacious. The assessing officers chose to ignore the guidelines and hence the CBDT was justified in issuing appropriate guidelines under Circular No. 789. The said Circular does not in any way crib, confine or cabin the powers of the assessing officers with regard to any particular assessment. It merely formulates broad guidelines to be applied in the matter of assessment of the assesses covered by the provisions of the Indo - Mauritius Double Taxation Avoidance Convention, 1983. 43. In Commissioner of Income Tax v. Anjum M.H. Ghaswala and Ors. [(2002) 1 SCC 633] , it was pointed out that the circulars issued by CBDT under Section 119 of the Income Tax Act have statutory force and would be binding on every income-tax authority although such may not be the case with regard to press releases issue by the CBDT for information of the public. 44. In UCO Bank v. CIT [(1999) 4 SCC 599] , this Court opined that the circulars as contemplated therein cannot be adverse to the assessee. Thus, the authority which wields the power for its own advantage when required to wield it in a manner it considers just by relaxing the rigour of the law or in other permissible manners as laid down in Section 119. The power is given for the purpose of just, proper and efficient management of the work of assessment and in public interest. 45. In BSNL & anr. v. BPL Mobile Cellur Ltd. & ors. [2008 (8) SCALE 106 ], it was held that the direction contained in the said circular letters are relevant for the officers who are authorised not only to grant licenses but also enter into contracts and prepare bills. The circular letters having no statutory force undoubtedly would not govern the contract. A distinction, thus, must be made between statutory and non-statutory guidelines. A distinction must also be made between the circular which are relevant but not binding on the third parties and which are imperative in character. 46. As regards the Reserve Bank of India guidelines, it was the direction of the Appellate Tribunal that the Respondent-Bank should settle the case of the appellants under the RBI guidelines through a One Time Settlement and should invite a proposal for settlement and recovery of the agreed amount. 47. The Appellate Tribunal in passing its order followed the dicta laid down in Constitution Bench judgment in Central Bank of India (supra), wherein it was held that: .....RBI directive have not only statutory flavour, any contravention thereof or any default in compliance therewith is punishable under sub-section (4) of S. 46 of the Banking Regulation Act, 1949.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 1

Reasoning from the judgment:
1[ds]17. We may, however, place on record that the Parliament, in its wisdom, inserted Section 36A of the Act by the Banking Companies (Amendment) Act, 1959 in terms whereof some of the provisions of the 1949 Act were not to be applied to certain banking companies18. Indisputably, the guidelines were issued by the Reserve Bank of India by reason of a letter dated 3.09.2005 addressed to the Chairman/ Managing Director of all public sector banks. It clearly refers to a circular dated 19.08.2005 issued by the Reserve Bank of India in terms whereof it was directed that one time settlement scheme for recovery of NPA below Rs. 10 crore was laid down. The said letter was issued pursuant to the aforementioned circular in terms whereof one time settlement scheme was formulated for recovery of NPA below Rs. 10 crores. It was categorically stated therein that the same was required to be implemented by all public sector banks. The guidelines issued were to provide a simplified,y mechanism therefor in SME sector. It was categorically stated that all public sector banks shall uniformly implement these guidelines20. Before, however, adverting to the question as to whether the Board of Directors of the respondentBank could deviate from the aforementioned guidelines and, if so, to what extent, we may notice the following correspondences, which was exchanged by the parties hereto, so as to enable us to consider as to whether the respondentBank had itself applied the said guidelines in case of the appellants or not27. The said order of the Punjab and Haryana High Court dated 21.11.2006 again indisputably has been affirmed by this Court. But, in our opinion, the same by itself did not preclude the appellants to approach the Appellate Tribunal. The jurisdiction of the appellate tribunal ise with the powers of the Tribunal. The memo of appeal filed by the appellants before the Tribunal clearly shows that the contentions with regard to the enforcement of the aforementioned provisions had been made therein28. It is, therefore, not correct to contend that no pleadings were made for the purpose of enforcing the RBI guidelines in respect of one time settlement29. It may be that no specific prayer was made but the same, in our opinion, keeping in view the provisions of the 2002 Act, did not preclude the Appellate Tribunal to consider the offer of the appellants. The Appellate Tribunal in terms of the provisions of the Act like the original Tribunal is interested only in recovery of the amount. While doing so, it, in our considered opinion, has the requisite jurisdiction to consider the prayer made by a debtor for one time settlement particularly in view of the fact that the same is within the purview of One Time Settlement Scheme of the Reserve Bank of India. If a public sector bank is otherwise bound by any guidelines issued by the Reserve Bank of India, we see no reason as to why the same cannot be enforced in terms of the provisions of the Act by the Tribunal and consequently by the Appellate Tribunal. It is not a case where the appellants had prayed for quashing of a policy decision taken by the respondentBank. The question which arose for consideration before the Appellate Tribunal as also before the High Court was as to whether offer having been made by the bank to the appellants herein, it could have turned around and contend that only because the appellants had furnished security to the extent of Rs. 11 crores, the same by itself would entitle it to take recourse to a discriminatory treatment. The answer to the said question must be rendered in the negative30. We may notice that the offer made by the appellants in terms of the RBI guidelines for one time settlement was Rs., however, keeping in view the fact that the respondentBank had a better security available to it demanded a sum of Rs. 4.92 crores32. Does it satisfy they clause laid down by the Reserve Bank of India and accepted by the Reserve Bank is the question. While making a deviation, the Board of Directors of a public sector bank could not have taken recourse to a policy decision which is per se discriminatory. RespondentBank is a `State within the meaning of Article 12 of the Constitution of India apart from the fact that it is bound to follow the guidelines issued by the Reserve Bank of India33. If, therefore, the broad policy decisions contained in the guidelines were required to be followed, the power of the Board of Directors to make deviation in terms of Clause 4 thereof would only be in relation to some minor matters which does not touch the broad aspects of the policy decision and in particular the one governing they treatment. In a case of this nature, we are satisfied that the respondentBank is guilty of violation of the equality clause contained in the Reserve Bank of India guidelines as also Article 14 of the Constitution of India34. The fact that the appellants were defaulters is not in dispute. It is also not in dispute that it comes within the purview of the Small and Medium Enterprises sector35. It is furthermore not in dispute that the respondentBank itself had made an offer to accept the proposal of the appellants in regard to enforcement of one time settlement pursuant to the RBI guidelines. Indisputably, it was all along aware that the amount of securities was lying with it. It is only pursuant thereto the directions had been issued by the Tribunal39. Judicial discipline mandates the bench comprising of two Judges to follow the judgments of the Constitution Bench having regard to Article 141 of the Constitution of India40. If in terms of the guidelines issued by the Reserve Bank of India a right is created in a borrower, we see no reason as to why a writ of mandamus could not be issued. We would assume, as has been contended by Mr. Singh, that while exercising its power under Article 226 of the Constitution of India, the High Courts may or may not issue such a direction but the same, in our opinion, by itself, would not mean that the High Court would be correct in interfering with an order passed by the Appellate Tribunal which was entitled to consider the effect of such one time settlement41. The question pertaining to the present matter is regarding whether or not a circular issued by a statutory body for the governance and regulation of certain agreements confers a legal right upon the aggrieved party in case ofe or complete and absolute deviation from the said guidelines by the body formulating such circulars. Alternately, can the aggrieved party, then, claim its right of judicial review under Article 32 or 226 to quash the said circular in case of discriminatory application of such rules/guidelines so mentioned in the circular46. As regards the Reserve Bank of India guidelines, it was the direction of the Appellate Tribunal that thek should settle the case of the appellants under the RBI guidelines through a One Time Settlement and should invite a proposal for settlement and recovery of the agreed amount.