8 July 2020. The Karnataka High Court has held that a Writ Petition under Article 226 of the Constitution of India is maintainable against private banks seeking implementation of the Circular issued by the Reserve Bank of India dated 27 March 2020.
Justice Suraj Govindaraj framed a specific question as to whether a writ of mandamus can be issued against a private bank to implement the Circular issued by the RBI dated 27.03.2020?. While answering this question, the judge has held that It is the obligation and duty of the RBI to regulate the financial institutions, its business as also the credit system of the country, by exercising the powers vested with it under the Reserve Bank of India Act, 1934. The RBI circular has permitted the grant of a moratorium to all borrowers so as to keep the viable borrowers/business running. It is therefore clear that the Circular is issued in the public interest and any aspect relating thereto would attract a public law element.
The court relied, inter alia, on the judgment of the Supreme Court in Punjab National Bank and another vs Astamija Dash (2008) 14 SCC 370 to the effect that the said bank was covered within the ambit of Article 12 of the Constitution. The Supreme Court issued a writ when the dispute before the Court was relating to the enforcement of the principle of equality amongst the employees of the Bank, holding that same is a public duty of the Bank.
Proceeding further, the Court held that though the Circular issued by the RBI dated 27 March is not mandatory in so far as the power to grant moratorium, it is mandatory for the Bank to ensure the continuity of viable business. Non-grant of moratorium should not result in adversely affecting the survival and continuity of a viable business. The court in paragraph 22.16 held that Once the banks have in the public domain on their respective websites expressed their solidarity with all their customers and stated that all the customers are eligible for grant of a moratorium in accordance with RBI guidelines, it is not permissible for such banks to nit-pick and later on refuse the grant of a moratorium to petitioner who is otherwise eligible. That is to say the Banks cannot take one sided stand in the public domain and a contradictory stand while implementing that they have stated in the public domain. Both the RBI and the banks have held out that all customers are eligible for a moratorium. The availing of or otherwise of the moratorium is at the sole discretion of the borrower more so when the borrower would be required to make payment of additional interest during the said moratorium period.
The Court further held that the moratorium under the Circular is applicable even to a structured loan like LRD availed by the customer since the appropriation of the monies of the LRD would have negative impact on the continuity of the petitioner. One bank cannot refuse extension of a moratorium when another or others are willing to extend the benefit or a moratorium.
Allowing the writ petition, the Court granted a writ of mandamus against the Reserve Bank of India to enforce the recovery package contained in the Circular dated 27 March 2020. The communications issued by the banks are also quashed. The Court has directed the Banks to grant moratorium to the petitioner as per the Circular subject to payment of interest portion. The court has also restrained the banks from recovering the loan repayment installment during moratorium.
Case details: Writ Petition 6775/2020 Velankani Information Systems Limited vs Secretary, Ministry of Home Affairs, Government of India and others. Decided on 8 July 2020
Judgement Link: http://judgmenthck.kar.nic.in/judgmentsdsp/bitstream/123456789/334829/1/WP6775-20-08-07-2020.pdf
Compiled by. S.Basavaraj, Advocate, Daksha Legal, Bangalore
Daksha Legal 
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