Case: Zonal Manager, Central Bank Of India Vs. M/S. Devi Ispat Ltd

is a Company incorporated under the name and style of M/s Devi Ispat Ltd. The Respondent-Company carries on the business of 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 Companys account whereby the Company was to enjoy 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 forlacs being Account No. 1103589988, Working Capital Demand Loan forlacs being Account No. 3001640109 and a Letter of Credit in favour of the West Bengal State Electricity Board forb) 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 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 thesubmitted 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 (respondentherein) 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 Bankers cheque of Rs. 15 crores to the respondent-Company which 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 ofObjection Certificate (in shortNo Due Certificate (in shortOn 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.

Court's reasoning:
It is clear that, (a) in the contract if there is a clause for arbitration, normally, writ court should not invoke its jurisdiction; (b) the existence of effective alternative remedy provided in the contract itself is a good ground to decline to exercise its extraordinary jurisdiction under226; and (c) if the instrumentality of the State acts contrary to the public good, public interest, unfairly, unjustly, unreasonably discriminatory and violative of14 of the Constitution of India in its contractual or statutory obligation, writ petition would be maintainable. However, a legal right must exist and corresponding legal duty on the part of the State and if any action on the part of the State is wholly unfair or arbitrary, writ courts can exercise their power.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 theappellant-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 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.