Rajvinder Singh Bedi Vs Reserve Bank of India And Others (Panjab and Haryana high court)
The Punjab and Haryana High Court has dismissed a petition seeking directions against ICICI Bank, a private entity, regarding the possession and auction of a mortgaged property. The court reiterated that private banks do not fall under the definition of ‘State’ as per Article 12 of the Constitution of India, and thus, are not amenable to writ jurisdiction for such matters.
The petitioner, identified as a borrower, had approached the High Court seeking an order for ICICI Bank to expedite the physical possession and subsequent auction of a mortgaged property. The petitioner contended that despite notices being issued under Sections 13(2) and 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act in 2019, the bank had failed to take concrete steps, leading to a continuous increase in outstanding dues.
Judicial Precedents Guide Court’s Decision
The High Court, after hearing the petitioner’s counsel, concluded that the requested direction could not be issued to ICICI Bank. The court’s decision was significantly influenced by established judicial precedents from the Supreme Court.
A key reference was made to the Supreme Court’s judgment in Phoenix ARC Private Limited vs. Vishwa Bharati Vidya Mandir & Ors. (2022) 5 SCC 645. In this case, the Supreme Court explicitly held that a writ petition against a private financial institution, such as an Asset Reconstruction Company (ARC), for actions proposed under Section 13(4) of the SARFAESI Act, is generally not maintainable.
The Supreme Court in Phoenix ARC clarified that private financial institutions, when engaged in recovering borrowed amounts as secured creditors, are not performing public functions typically expected of state authorities. The lending of money during a commercial transaction, even by a bank or ARC, does not constitute a public function. Therefore, if a borrower is aggrieved by actions of a private bank or ARC under the SARFAESI Act, the appropriate remedy lies within the provisions of the SARFAESI Act itself, rather than through a writ petition.
The Punjab and Haryana High Court also referred to another significant Supreme Court ruling in Federal Bank Ltd. vs. Sagar Thomas (2003) 10 SCC 733. This judgment further reinforced the principle that merely because a private company conducts commercial banking activities, it does not automatically classify it as carrying out a statutory or public duty, thereby bringing it under the scope of writ jurisdiction.
In Federal Bank Ltd., the Supreme Court elaborated that regulatory measures imposed by the Reserve Bank of India on banking companies, even those concerning banking policy or monetary stability, do not transform the commercial activities of private banks into public functions or duties. The court clarified that such regulations are merely designed to ensure discipline within the banking sector. The Supreme Court underscored that a private body or person can only be subjected to writ jurisdiction if it is necessary to compel them to enforce statutory obligations or obligations of a public nature that cast a positive duty upon them. The court found no such conditions fulfilled for a private company involved in commercial banking.
Petition Dismissed, Alternative Remedies Available
Based on these precedents, the Punjab and Haryana High Court dismissed the petition, declaring it as not maintainable. The court explicitly stated that it was not expressing any opinion on the merits of the controversy.
However, the court also informed the petitioner that they were at liberty to pursue alternative remedies available to them under the law. This suggests that the petitioner can still seek redressal through the mechanisms provided within the SARFAESI Act or other relevant legal avenues, rather than through a writ petition against a private banking entity.
FULL TEXT OF THE JUDGMENT/ORDER OF PANJAB HIGH COURT
The petitioner, who is borrower, is seeking directions to respondent No.2-ICICI Bank to take immediate steps to secure physical possession of the mortgaged property and thereafter, auction it.
2. Learned counsel for the petitioner submits that although notices under Section 13(2) and 13(4) were issued in the year 2019 but respondent No.2-Bank has not taken any steps to take over the physical possession or auction the mortgaged property and his outstanding dues are increasing day by day.
3. After hearing learned counsel for the petitioner, we are of the considered view that a direction, as sought for, cannot be issued to respondent No.2-Bank for the reason that respondent No.2 is a private bank and does not fall under the definition of ‘State’ or its instrumentality as set out in Article 12 of the Constitution of India. Reference can be made to the judgment of the Supreme Court in the case of Phoenix ARC Private Limited vs. Vishwa Bharati Vidya Mandir & Ors., (2022) 5 SCC 645, wherein it has been held that writ petition would not be maintainable against the action of a private financial institution. The relevant extract of the judgment is reproduced hereunder:
“12. Even otherwise, it is required to be noted that a writ petition against the private financial institution – ARC – appellant herein under Article 226 of the Constitution of India against the proposed action/ actions under Section 13(4) of the SARFAESI Act can be said to be not maintainable. In the present case, the ARC proposed to take action/ actions under the SARFAESI Act to recover the borrowed amount as a secured creditor. The ARC as such cannot be said to be performing public functions which are normally expected to be performed by the State authorities. During the course of a commercial transaction and under the contract, the bank/ ARC lent the money to the borrowers herein and therefore the said activity of the bank/ ARC cannot be said to be as performing a public function which is normally expected to be performed by the State authorities. If proceedings are initiated under the SARFAESI Act and/or any proposed action is to be taken and the borrower is aggrieved by any of the actions of the private bank/ bank/ ARC, borrower has to avail the remedy under the SARFAESI Act and no writ petition would lie and/or is maintainable and/or entertainable. xxx xxx xxx.”
4. We may also refer to the judgment of the Supreme Court in the case of Federal Bank Ltd. vs. Sagar Thomas, (2003) 10 SCC 733, wherein it was held that a merely because a private company is carrying on commercial activity of banking, that by itself, would not make it a statutory obligation or one which is public in nature, so as to bring it within the scope of writ jurisdiction. The relevant extract thereof is set out hereunder:-
“32. Merely because the Reserve Bank of India lays the banking policy in the interest of the banking system or in the interest of monetary stability or sound economic growth having due regard to the interests of the depositors etc. as provided under Section 5 (c)(a) of the Banking Regulation Act does not mean that the private companies carrying on the business of or commercial activity of banking, discharge any public function or public duty. These are all regulatory measures applicable to those carrying on commercial activity in banking and these companies are to act according to these provisions failing which certain consequences follow as indicated in the Act itself. Provision regarding acquisition of a banking company by the Government, it may be pointed out that any private property can be acquired by the Government in public interest. It is now judicially accepted norm that private interest has to give way to the public interest. If a private property is acquired in public interest it does not mean that the party whose property is acquired is performing or discharging any function or duty of public character though it would be so for acquiring authority. 33. For the discussion held above, in our view, a private company carrying on banking business as a scheduled bank, cannot be termed as an institution or company carrying on any statutory or public duty. A private body or a person may be amenable to writ jurisdiction only where it may become necessary to compel such body or association to enforce any statutory obligations or such obligations of public nature casting positive obligation upon it. We don’t find such conditions are fulfilled in respect of a private company carrying on a commercial activity of banking. Merely regulatory provisions to ensure such activity carried on by private bodies work within a discipline, do not confer any such status upon the company nor puts any such obligation upon it which may be enforced through issue of a writ under Article 226 of the Constitution. Present is a case of disciplinary action being taken against its employee by the appellant Bank. Respondent’s service with the bank stands terminated. The action of the Bank was challenged by the respondent by filing a writ petition under Article 226 of the Constitution of India. The respondent is not trying to enforce any statutory duty on the part of the Bank. That being the position, the appeal deserves to be allowed.”
5. Consequently, this petition is dismissed as not maintainable. We are not expressing any opinion on the merits of the controversy. However, the petitioner shall be at liberty to seek recourse to the alternative remedy available to him, in accordance with law.
