Zonal Manager, Central Bank Of India vs M/S. Devi Ispat Ltd & Ors

manufacturing and trading in ingots and various other types of steel and for the said purpose requires financial support from the financial institutions like the appellant- Bank. Since the very inception of the respondent- Company, it has been banking with the appellant-Bank and availing various credit facilities like Term Loan, Working Capital Demand Loan, Cash Credit and Letter of Credit facility. On 16.10.2006, the respondent-Company wrote a letter to the appellant-Bank requesting it to review and enhance its credit facilities. On 15.12.2006, the appellant-Bank intimated the respondent-Company of its decision of review and enhanced credit facilities of the Company's account whereby the Company was to enjoy 2 two Term Loans being Term Loan I for Rs. 360 lacs being Account No. 1103590030, Term Loan II for Rs. 215 lacs being Account No. 1103590041, Cash Credit for Rs.300 lacs being Account No. 1103589988, Working Capital Demand Loan for Rs.1200 lacs being Account No. 3001640109 and a Letter of Credit in favour of the West Bengal State Electricity Board for Rs.56 lacs.

b) Due to various irregularities in the account of the respondent-Company, the appellant-Bank by various letters between 15.09.2008 to 24.04.2009, advised the respondent-Company to shift its loan account to some other Bank. On 12.01.2009, the appellant-Bank sent the Credit Information Report of the respondent-Company to its new Banker, namely, the State Bank of India. On 25.02.2009, the appellant-Bank received an Internal Audit Report in respect of the fraud perpetrated in the accounts of M/s Rajco Steel Enterprises and M/s Kali International Pvt. Ltd., whereby crores of rupees were siphoned away to the account of the respondent-Company. Therefore, on 3 14.03.2009, the appellant-Bank filed two complaints with the Superintendent of Police, Central Bureau of Investigation, Kolkata complaining of the fraud and requesting the CBI, Kolkata to investigate into the matter.

c) On 02.04.2009, Special Audit Team of the appellant- Bank submitted its report on the fraud committed by the respondent-Company which revealed the transfer of a huge amount of funds from the account of M/s Rajco Steel Enterprises and M/s Kali International Pvt. Ltd. to the account of the respondent-Company. On 06.05.2009, the respondent-Company requested the appellant-Bank to handover the original title deeds of its factory premises and all the collateral securities held by it as against the Company as well as from Mr. Nirmal Kumar Mandhani, Director of the Company (respondent No.2 herein) to the State Bank of India, Chowringhee Branch, Kolkata to whom they had transferred their account. On 09.05.2009, the State Bank of India issued a Banker's cheque of Rs. 15 crores to the respondent-Company which 4 the appellant-Bank had encashed and appropriated in lieu of the outstanding balances lying against the respondent- Company. By various letters, the respondent-Company requested the appellant-Bank to return the Security documents and issuance of `No Objection Certificate' (in short `NOC') and `No Due Certificate' (in short `NDC'). On 29.05.2009, the respondent-Company filed W.P. No. 485 of 2009 before the High Court at Calcutta. By order dated 24.08.2009, the learned single Judge of the High court allowed the writ petition and directed the appellant-Bank to release the security documents. Challenging the said judgment, the appellant-Bank filed an appeal before the Division Bench of the High Court being G.A. No. 2441 of 2009. By order dated 05.04.2010, the High Court dismissed the appeal filed by the appellant herein. Aggrieved by the said order, the appellant-Bank has preferred this appeal by way of special leave. 5

7) In order to answer the above contentions, there is no need to narrate all the factual details except which are required for the disposal of the above appeal. It is true that the respondent-Company filed a writ petition before the learned single Judge of the Calcutta High Court praying for issuance of a writ of mandamus directing the Bank to forthwith take steps to release the security documents and issue `NOC' and `NDC' pertaining to their company's accounts without any further delay. It is also not in dispute that the respondent-Company carries on the business of manufacturing and trading in ingots and 7 various other types of steel and for the said purpose, it requires financial support from the institution like the appellant-Bank. The appellant-Bank, being a public sector Bank, discharging public functions is a `State' in terms of Article 12 of the Constitution of India amenable to the writ jurisdiction. In the earlier part, we have adverted to the fact that the respondent-Company had availed various facilities such as Term Loan, Working Capital Demand Loan, Cash Credit and Letter of Credit facility. During the course of business, on 16.10.2006, the respondent-Company wrote to the appellant-Bank requesting it to review and enhance its credit facilities. The same was also acceded to by the Bank. After two years, between 15.09.2008 to 24.04.2009, the Bank advised the Company to shift its borrowings to some other Bank due to certain irregularities in the accounts of the respondent-Company. Since the Company had not complied with the direction in the letter dated 24.04.2009, the Bank called upon the Company to close their 8 accounts. On the other hand, the Company requested the Bank to return the title deeds and other collateral securities to enable them to entrust the same to other Nationalized Bank. It is seen from the materials placed that the Bank had taken such a stand requesting the Company to shift their account to some other Bank since it came to know that a fraud having been perpetrated by M/s Rajco Steel Enterprises & M/s Kali International Pvt. Ltd., and the respondent-Company is having a connection with them. It is unnecessary to find out the truth or otherwise in these proceedings. However, it is not in dispute that in respect of their dues, the respondent- Company made an arrangement with the State Bank of India and deposited a cheque of Rs.15 Crores from the State Bank of India. In fact, the receipt of an amount of Rs. 15 Crores from the State Bank of India on and behalf of the respondent-Company has not been disputed. The letter dated 12.05.2009, addressed to the appellant-Bank, make it clear that they received a cheque of Rs. 15 Crores 9 from the State Bank of India, Chowringhee Road Branch and the Company has also reminded the appellant-Bank to return the security documents. The said letter reads as under:-

The above factual details clearly demonstrate that through an arrangement with the State Bank of India, Chowringhee Road Branch, the respondent-Company settled a sum of Rs. 15 Crores to the appellant-Bank and the statement of accounts prevailing as on 14.05.2009 clearly reveal that there is no amount outstanding. Taking note of these undisputed factual details, the Bank, being a nationalized institution, amenable to writ jurisdiction, the High Court has rightly issued a writ of mandamus for return of the title deeds.

We would therefore in the ordinary course have given the appellant the writ he seeks. But, owing to the time which this matter has taken to reach us (a consequence for which the appellant is in no way to blame, for he has done all he could to have an early hearing), there is barely a fortnight of the contract left to go. ... A writ would therefore be ineffective and as it is not our practice to issue meaningless writs we must dismiss this appeal and leave the appellant content with an enunciation of the law."

16. In the present case, in our judgment, the High Court was not justified in dismissing the petition on the ground that it will not determine disputed question of fact. The High Court has jurisdiction to determine questions of fact, even if they are in dispute and the present, in our judgment, is a case in which in the interests of both the parties the High Court should have entertained the petition and called for an affidavit-in- reply from the respondents, and should have proceeded to try the petition instead of relegating the appellants to a separate suit."

16) In the light of the legal position, writ petition is maintainable even in contractual matters, in the circumstances mentioned in the earlier paragraphs. In the case on hand, it is not in dispute that the appellant- Bank, being a public sector Bank, discharging public functions is "State" under Article 12. In view of the settlement of the dues on the date of filing of the writ petition by arrangement made through another Nationalized Bank, namely, State Bank of India and the statement of accounts furnished by the appellant-Bank subsequent to the same i.e. on 14.05.2009 is 0.00 (nil) outstanding, we hold that the High Court was fully 2 justified in issuing a writ of mandamus for return of its title deeds. In the light of the above conclusion, we are unable to accept the claim of the appellant-Bank and on the other hand, we are in entire agreement with the direction issued by the learned Single Judge affirmed by the Division Bench. Consequently, the appeal of the Bank is dismissed. The appellant-Bank is directed to return the title deeds deposited by the respondent-Company within a period of two weeks from today. With the above direction, the civil appeal is dismissed. No order as to costs.

JULY 30, 2010.