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

Appellants herein as also the Performa respondent Nos. 2 to 11 along with one Smt. Darshan Kaur (since deceased) obtained the facilities for grant of loan for a sum of Rs. 3, 54,50,000/- for business purposes which was being carried out by them under the name and style of M/s. Sardar Associates Limited, appellant No. 1 herein. The said amount was sanctioned and disbursed from time to time. Indisputably, the appellant No. 2 and the Proforma respondent Nos. 2 to 11 as also the said Smt. Darshan Kaur stood as guarantors. Appellant Nos. 1 and 2 as also Proforma respondent Nos. 5 and 7 also mortgaged their properties in favour of the respondent - Bank by way of security to the said amount. Defaults having been made in discharging their liabilities, their assets were declared as NPA as per the guidelines issued by the Reserve Bank of India4. A proceeding was initiated by the respondent - Bank purporting to be under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short the 2002 Act) for recovery of the said amount together with interest upon due service of a notice in terms of Sub-section (4) of Section 13 thereof. The total amount of claim laid before the Tribunal by the bank as against the debtors was Rs. 4,16,85,443.62 inclusive of interest upto 31.07.2003. The said application was allowed by the Tribunal whereagainst an appeal was preferred before the Appellate Tribunal5. Indisputably, pursuant to the judgment and order of the Tribunal, a recovery certificate was issued for recovery of a sum of Rs. 4,16,58,581.62 along with pendent lite and future interest at the rate of 12% p.a. with quarterly rests from the date of filing of the application till realizationIt is at that stage, the appellant No. 1 approached the respondent - bank for settlement of their disputes purported to be in terms of the guidelines issued by the Reserve Bank of India. They made an offer for a one time settlement for a sum of Rs. 345.31 lakhs. The said proposal, however, was not accepted by the respondent - Bank6. Respondent - Bank issued a circular bearing No. 176 dated 18.10.2005. Questioning the validity of the said circular, the appellant No. 1 filed a writ petition before the High Court contending that the same was contrary to the guidelines issued by the Reserve Bank of India insofar as the same relates to the scheme for one time settlement for the Small and Medium Enterprises. A prayer was also made therein that the respondent -Bank be directed to settle the matter as per the RBI guidelines. The said writ petition was dismissed only on the premise that the appellant No. 1 had not disclosed therein that it had already approached the Tribunal for recovery of the amount in question7. A special leave petition filed thereagainst which was marked as SLP (C) No. 21134 of 2006 was, however, dismissed by this Court on 31.01.20078. Appellants approached the Appellate Tribunal in terms of Section 21 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short the 1993 Act). The appeal was entertained. Respondent – Bank also preferred an appeal before the Appellate Tribunal claiming pendent lite and future interest at the rate of 16.50% with quarterly rests instead of 12% p.a. as had been granted by the Tribunal in its order dated 23.11.2006. The Appellate Tribunal by a judgment and order dated 13.04.2007, dismissed the appeal preferred by the respondent - Bank and allowed that of the appellants and the Performa Respondent Nos. 2 to 11 directing the respondent – Bank to make one time settlement in terms of the guidelines issued by the Reserve Bank of India as was prevailing at the relevant time9. We must, however, place on record that the Appellate Tribunal affirmed the judgment as also the validity of the recovery certificate dated 23.11.200610. It furthermore permitted the appellants and the Proforma Respondent Nos. 2 to 11 to sell the secured properties for clearing the dues in terms of one time settlement scheme and ordered that such an exercise must be completed within a period of four months during which period the bank was restrained from taking any coercive steps against them

Court's reasoning:
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.