On July 13, 2022, the Gujarat High Court at Ahmedabad gave its decision in the case of Universal Hospital Al Ain LLC v. Yes Bank Limited whereby it confirmed the position that private banks are not amenable to writ jurisdiction under Article 226 of the Constitution of India.
The writ petition was preferred by Universal Hospital Al Ain LLC (‘Petitioner’) challenging the actions to declare the Petitioners as a willful defaulter by Yes Bank Limited (‘Respondent’) by issuing a show cause notice dated August 14, 2020 (‘Impugned Notice’) under the Master Circular on Willful Defaulters’ dated July 1, 2015 issued by the Reserve Bank of India.
The Impugned Notice was issued to the Petitioner as it committed defaults in repayment of the amount payable to the Respondent under the facility agreements. The Petitioner also replied to the Impugned Notice requesting for necessary documents, but the Respondent failed to respond to the Petitioner.
It was contended by the Petitioner that it was making regular payments to the Respondent, with the last payment being made on October 18, 2019, despite the same, the Impugned Notice was issued. The Petitioner also contended that the Impugned Notice was vague as it did not specify the necessary particulars to facilitate the Petitioner to answer the same and therefore, the Impugned Notice is required to be quashed and set aside.
The Respondent contended that the writ under Article 226 of the Constitution of India is not maintainable against a private bank and therefore, the Petition ought to be dismissed.
As the Respondent raised a preliminary objection on the maintainability of the writ petition, the issue which arose for consideration before the High Court was whether a writ petition against a private bank would be maintainable.
Submissions on behalf of the Respondent:
The submissions made on behalf of the Respondent in the writ petition on maintainability are summarized below:
(i) The issue is no more res-integra as a coordinate bench of the Gujarat High Court on November 28, 2019 in Ionic Metaliks v. Union of India held that a writ is not maintainable against the private bank.
(ii) The ratio in Ionic Metaliks was followed in another identical issue of a writ against Yes Bank and it was held that Yes Bank being a private bank, a writ petition against it is not maintainable.
Submissions on behalf of Petitioner:
The submissions made on behalf of the Petitioner are summarized below:
(i) Subsequent to the decision whereby it was held that a writ petition is not maintainable against Yes Bank, the Respondent Bank has undergone change in the shareholding pattern, with the State Bank of India holding 30% and Life Insurance Corporation of India holding 4.90% shareholding in Yes Bank – Respondent.
(ii) Total 34.90% shareholding in the Respondent is held by Government entities and resultantly the State has deep and persuasive control over the Respondent.
(iii) There is dereliction of duty of public nature and therefore, the Respondent can be said to be a ‘State’, amenable to writ jurisdiction.
The High Court, inter-alia, observed that the shareholding in the Respondent would not be sufficient for the purposes of holding that the bank is in dereliction of a public function and that essentially it is a transaction between a creditor and a borrower. A mere shareholding would not bring the Respondent within the purview of a State.
It was further observed that private financial institutions do not receive any financial assistance from the Government and no state protection is offered to such institutions. No part of their share capital was being held by the Government and the affairs of the Respondent is controlled by the Board of Directors, which are duly elected by the bank’s shareholders. The High Court noted that the State Bank of India is not a government body, it is a statutory bank, and therefore, a mere investment by the State Bank of India and the Life Corporation of India having shareholding in the Respondent cannot be termed as a ‘State’ or Authority as defined under Article 12 of the Constitution of India.
The High Court placed reliance upon the Supreme Court’s decision in Federal Bank Limited v. Sagar Thomas, AIR 2003 SC 4325, the decision in Ionic Metaliks v. Union of India, 2015 GLH (2) 156, and Phoenix ARC Private Limited v. Vishwa Bharati Vidya Mandir, Civil Appeal No. 257-259 of 2022, and dismissed the petition.
It held that the Respondent being a private bank is not amenable to the writ jurisdiction and it would be open for the Petitioner to seek appropriate legal remedy before the appropriate forum in accordance with law.
Please find attached a copy of the order.
This update has been contributed by Aashdin B. Chivalwala (Principal Associate).
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