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C/SCA/12852/2018 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 12852 of 2018
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE J.B.PARDIWALA
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1 Whether Reporters of Local Papers may be allowed to Yes
see the judgment ?
2 To be referred to the Reporter or not ? Yes
3 Whether their Lordships wish to see the fair copy of the No
judgment ?
4 Whether this case involves a substantial question of law No
as to the interpretation of the Constitution of India or any
order made thereunder ?
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CHANDUBHAI I PATEL
Versus
CHIEF EXECUTIVE OFFICER
==========================================================
Appearance:
MR MEHULSHARAD SHAH(773) for the PETITIONER(s) No. 1
MR AMAR N BHATT(160) for the RESPONDENT(s) No. 2
MR DAKSHESH MEHTA(2430) for the RESPONDENT(s) No. 1
MR. RUSHANG D MEHTA(6989) for the RESPONDENT(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
Date : 20/12/2018
ORAL JUDGMENT
1. By this writ application under Article 226 of the Page 1 of 96 C/SCA/12852/2018 JUDGMENT Constitution of India, the writ applicant has prayed for the following reliefs;
"(A) to issue a writ of mandamus or any other appropriate writ, order or direction, quashing and setting aside the order dated 16.08.2018 passed by Respondent No.1 herein and be pleased to hold and declare that CEO of the Bank has no powers to remove or restrain the Petitioner to work as an elected Director of the Bank.
(B) to issue a writ of mandamus or any other appropriate writ, order or direction, quashing and setting aside the direction issued by Reserve Bank of India to respondent No.1 Bank qua Petitioner for the alleged breach of Director's related accounts.
(C ) Pending admission, hearing and final disposal of this petition, Your Lordship may be pleased to direct the Respondents not to take any coercive steps against the Petitioner who is an elected director of Respondent No.1 Bank and from functioning as a Director of the Bank.
(D) to pass such other and further order/s as may be just and necessary in the circumstances of the case."
2. The facts of this case, giving rise to this writ application, can be gathered from the order passed by a Coordinate Bench dated 21st August, 2018, which reads thus;
"1. This is a petition challenging the oder passed by the Chief Executive Officer (C.E.O.) respondent no.1 dated 16.08.2018, by which he had informed the petitioner that he will not permit the petitioner to work as Director of the bank w.e.f. 24.08.2018 as per the directions of the Reserve Bank of India, if the accounts of one Vimal Dairy Ltd. and Swastic Ceracon Ltd. are not closed before the said date on the ground that both the accounts are Director related accounts.
2. This court has heard learned advocate appearing for the petitioner Mr. Mehul Shah. It is also noted from the correspondence dated 16.08.2018 that there is a Page 2 of 96 C/SCA/12852/2018 JUDGMENT previous correspondence of the Chief Executive Officer with both the companies. A reference is also made of the report of the Reserve Bank of India made in March, 2016. Learned advocate Mr. Shah has also pointed out that on 16.08.2018 itself, he has made a request to the respondent no. 1 Chief Executive Officer to furnish the report of the Reserve Bank of India stating that both the related accounts are Director related account.
3. Let the request made by the petitioner to the respondent no.1 be granted by August 23, 2018. Once the said report (not entire report, but only the report which concerns his cause) is produced before this court, other and further order shall be passed. Copy of this order shall be made available to the petitioner today itself. Keeping the issue of alternative remedy open, this order is being passed.
Let the matter appear on board on August 23, 2018 in first 5 matters.
Direct service today is permitted."
3. Pursuant to the order passed by this Court dated 21st August, 2018, referred to above, the following further order came to be passed dated 23rd August, 2018;
"2. Pursuant to the said order the respondent No.1 has acceded to the request of the petitioner and report concerning the present petitioner has been produced on the record with additional affidavit to urge that the copy of the abstract of RBI inspection report dated 31.03.2018 along with forwarding letter when is considered along with the explanation tendered by the Bank, which is also recorded in the said report is clear that as per ROC no director of the company and relative of the petitioner was associated with respondent No.1Bank. It is also the say of the petitioner that as per the details available on the website of the Ministry of Corporate Affairs, the resignation of Mr.Jayeshbhai Patel the son of the present petitioner, from the post of Director and Manager of the Vimal Dairy Ltd has been accepted by the company w.e.f.13.06.2015 and Form No. D.I.R. 12 was filed on 18.06.2015 and receipt was also issued by the Ministry Page 3 of 96 C/SCA/12852/2018 JUDGMENT of Corporates Affairs. It is also the say of the petitioner that Mr.Jayeshbhai Patel has resigned as Director from Swastic Ceracon Ltd w.e.f. 19.06.2012.
3. This Court has heard the learned senior counsel, Mr.Mihir Thakore with learned advocate, Mr.Mayur Sharad Shah who has taken this Court through the remarks/explanation by the Bank and also the reasons given by the RBI. It is urged by the learned senior counsel that factually it is also quite clear from the details which have been furnished that the accounts of Vimal Dairy Ltd and that of Swastic Ceracon Ltd are not director or related accounts and he has further questioned the very authority of C.E.O. In precluding the petitioner to act as a director by taking this Court through the provisions of Multi States Cooperatives Societies Act, 2002 and also the Bylaws under the very act of the Mahesana Urban Cooperative Bank Limited.
4. Let Notice as to interim relief be issued to the respondents, returnable on August 24, 2018.
5. Over and above the regular mode of service, direct service through email which has been provided by way of a pursish is also permitted TODAY at 02:30p.m. to the petitioner.
6. The respondent No.1 be served upon info@mucbank.com so far as the respondent No.2 is concerned, let an advance copy be given to the empaneled advocate based at Gujarat.
7. It is given to understand that learned advocate, Mr.Amar N. Bhatt appears for the RBI, let the copy be served to him today."
4. Thus, it appears that pursuant to the policy framed by the RBI and the guidelines issued by it from time to time in exercise of its powers under the provisions of the Banking Regulation Act, 1949 and the RBI Act, 1934, the writ applicant is sought to be removed as one of the Directors of the Respondent No.1-Bank. I take notice of the fact that in the entire petition, the subject matter of challenge is the action Page 4 of 96 C/SCA/12852/2018 JUDGMENT taken by the CEO of the Respondent No.1-Bank. A writ of certiorari has been prayed against a Multi-State Scheduled Bank registered under the Multi-State Cooperative Societies Act, 1961. The prayer, in substance, is to quash and set aside the order dated 16th August, 2018 passed by the Bank.
5. I take notice of the fact that one more relief is prayed for in the writ application for a writ of mandamus or any other appropriate writ, order or direction to set aside the instructions issued by the RBI to the respondent No.1-Bank with respect to the breach of the writ applicant's relatives' accounts.
6. The impugned order passed by the Respondent No.1- Bank reads as under;
"Ref.No.MUCB/CEO/50/2018 Date: 16.08.2018 To, Shri Chandubhai I. Patel, Director, The Mehsana Urban Co-op. Bank Ltd.
Mehsana.
Respected Sir, Sub: Step down from the Board of Directors.
With reference to the above, we have intimated the following Companies vide our letter dated 18.11.2017, 04.12.2017 & 05.04.2018 to close down the following two accounts (1) Vimal Dairy Ltd. with Ganpat University Branch, Kherva and (2) Swastic Ceracon Limited with our main branch. The Reserve Bank of India have instructed in connection of the Inspection Report March 2016 position where they have classified the above two accounts as Director related Account and as per RBI Inspection Report, it is connecting landing to you even Page 5 of 96 C/SCA/12852/2018 JUDGMENT though you have denied that it is not connected as per RBI definition. Reserve Bank of India have advised that above two Loan Account is to be closed, which is disputed Loan Account.
Recently we have advised to close the above two Accounts before 24th August, 2018 and written a letter to the concerned Companies recently and also in past. Both the above Companies have assured us to close the Account in writing and asked for the time to shift in other Banks. Now sufficient time is given to both the Companies and at last we advised them to close the Account before 24th August, 2018. Now, if the said Accounts which is classified by RBI as connected landing is to be closed before time limit otherwise you will not be permitted to work as Director of the Bank as per direction of RBI with effect from 24th August, 2018 until above accounts will be closed, which may please be noted. We hope that and as per the past letters received from the respective firms and assured by them Account will be close and we will not be compelled to ask you to keep down from the Board of Directors.
Hoping for your Co-operation.
Thanking You, For, The Mehsana Urban Co-op. Bank Ltd.
Sd/-
Chief Executive Officer Encl; CC of letter dated 18.11.2017, 04.12.2017 & 05.04.2018"
7. I take notice of the bye-laws framed by the Respondent No.1-Bank under the Act, 2002. The bye-law No.39 reads thus;
"39.REMOVAL OF ELECTED DIRECTORS BY GENERAL BODY;
An elected Director of the Board who has acted adversely to the interest of the Bank may be removed on the basis of the report of the central Registrar or otherwise be removed from the Board upon resolution of the General Body passed by its meeting by majority not less than two Page 6 of 96 C/SCA/12852/2018 JUDGMENT third of the members present and voting at the meeting. The Director concerned shall not be removed unless he has given a reasonable opportunity of making a representation in the matter"
8. I also take notice of the master circular issued by the RBI dated 1st July, 2015 on the Board of Directors. The relevant part of the master circular is with regard to the prohibition on loans and advances. The same reads thus;
"6. Prohibition on loans and advances 6.1 Primary (urban) cooperative banks are prohibited from making providing or renewing either secured or unsecured loans and advances or extending any other financial accommodation to their directors, or their relatives and the firms/concerns/companies in which they are interested with effect from 1 October 2003. The existing advances may be allowed to continue upto the date when they are due.
6.2 The following categories of director-related loans are exempted from the purview of the above instructions.
(I) Regular employee-related loans to staff directors on the Board of UCBs.
(ii) Normal loans as applicable to members to the directors on the Boards of Salary Earners' co-operative banks and
(iii) Normal employee-related loans to Managing Directors of Multi-State co-operative banks.
(iv) Loans to Directors and their relatives against Fixed Deposits and Life Insurance Policies standing in their own name.
6.3 The words any other financial accommodation shall include funded and non-funded credit limits and underwritings and similar commitments, as under;
(a) The funded limits shall include loans and advances by way of bills purchase/discounting, pre-shipment and post-shipment credit facilities and purchase of capital equipment and acceptance limits in connection therewith Page 7 of 96 C/SCA/12852/2018 JUDGMENT sanctioned to borrowers, and guarantees by issue of which a bank undertakes financial obligation to enable its constituents to acquire capital assets.
(b) The non-funded limits shall include letters of credit, guarantees other than those referred to in paragraph (a) above and underwritings and similar commitments.
6.4 A person shall be deemed to be a relative of another, if and only if:-
a) they are members of a Hindu Undivided Family, or
b) they are husband and wife or
c) the one is related to the other in the manner
indicated below.
List of relatives
1. Father
2. Mother including step-mother
3. Son including step-son
4. Son's wife
5. Daughter including step-daughter
6. Daughter's husband
7. Brother (including step-brother)
8. Brother's wife
9. Sister (including step-sister)
10. Sister's husband."
9. I also take notice of the letter dated 27th September, 2017 addressed by the RBI to the respondent No.1-Bank intimating as under;
"XXI Statutory Inspection u/s 35 of B.R. Act 1949 (AACS), Position as on March 31, 2016- Violation of RBI Directives/Instructions.
Please refer to our letter DCBS (AH) BMS-I No.240/11.03.123/2017-18 dated August 10, 2017 and your reply ref 35/547 dated August 29, 2017 on the captioned subject.
In this regard you are now advised to instruct the directors involved in instances of connected lending to Page 8 of 96 C/SCA/12852/2018 JUDGMENT step down from the Board of Directors of the bank and recall the remaining disputed loan accounts. You are advised to act accordingly and submit the compliance by October 16,2017.
Yours Sincerely, Sd/-
(N.R. Ogle) General Manager"
10. I also take notice of the resolution passed by the respondent No.1-Bank with regard to the writ applicant. The resolution reads thus;
"Since it was instruction of RBI the bank was compelled to issue the letter as such till the closure of above accounts, the both director Shri Chandubhai I. Patel and Shri Ambalal J. Patel will not be allowed to work as a director of Bank and compelled to step down from the board of the Bank."
11. On 26th August, 2018, the writ applicant was informed by the respondent No.1-Bank to step down from the Board of Directors. The contents of the letter are as under;
"Ref No.MUCB/CEO/57/2018 Date : 27.08.2018 To, Shri Chandubhai I. Patel, Vimal Park, B/h. Rajkamal Petrol Pump, Mehsana-384002.
Respected Sir, Sub:- Step down from the Board of Directors With reference to the above and our letter No.MUCB/CEO/50/2018 dated 16.08.2018 in which we have intimated to you that the Reserve Bank of India have instructed in connection of the Inspection Report Page 9 of 96 C/SCA/12852/2018 JUDGMENT March-2016 by RBI that two Accounts (1) Swastic Ceracon Limited (2) Vimal Dairy Limited are connecting lending to you and in our letter dated 16.08.2018 we have asked to close the two accounts on or before 24.08.2018. Unfortunately, the accounts are not closed before 24.08.2018. Now as decided in the Board of Director's Meeting dated 18th August, 2018, you will not be allowed to work as a Director in the Board of Directors of the Bank and you are stepped down from the Board of Directors w.e.f. 24th August, 2018.
If you want to represent in the matter, you are free to represent by in person or through your Advocate or in written to the Board of Directors.
Hoping for your co-operation See you, For, The Mehsana Urban Co-operative Bank Ltd.
Sd/-
Vinodkumar M. Patel Chief Executive"
12. In the last, I took notice of one letter addressed by the Government of India to the respondent No.1- Bank dated 2 nd May, 2018, which reads as under;
"F.No.L-11014/44/2015-l&m Government of India Ministry of Agriculture & Farmers Welfare Department of Agriculture, Cooperation & Farmers Welfare Krishi Bhavan, New Delhi Dated the 2nd May, 2018 To, The Chief Executive Officer, The Mehsana Urban Cooperative Bank Ltd.
Highway, Mehsana, Gujarat Pin-384002
Page 10 of 96
C/SCA/12852/2018 JUDGMENT
Sub: Director related accounts the Mehsana Urban
Cooperative Bank Ltd. Reg.
Sir,
I am directed to say that Reserve Bank of India has brought to the notice of this Office that the Board for Financial Supervision (BFS) of the RBI, while reviewing the inspection findings on your bank in August, 2017 had directed that the Directors involved in instances of connected lending should be instructed to step down from the Board and the disputed loan accounts may be recalled by the bank.
2. You are directed to inform this office within 15 days from the date of receipt of this letter about the number and details of such Director related accounts (including relatives of the Directors and to the firms/companies related to them) and the number and names of Directors involved in such cases. You are further directed to explain as to why such Directors have not stepped down despite instructions from RBI.
5. This issues with the approval of Central Registrar of Cooperative Societies.
Sd/-
(Kamn R. Sharma) Dy. Commissioner (C & C)"
13. Mr. Saurabh Soparkar, the learned senior counsel, assisted by Mr. Amar N. Bhatt, the learned counsel appearing for the RBI has raised a preliminary objection with regard to the maintainability of this writ application. Mr. Soparkar raised an issue that the present writ application under Article 226 of the Constitution of India is not maintainable against a Multi-
State Scheduled Bank. According to Mr. Soparkar, merely by praying for relief in terms of para-9(B), the writ application would not be maintainable in law. The learned senior counsel Page 11 of 96 C/SCA/12852/2018 JUDGMENT submitted that a Multi-State Scheduled Bank is not a State within the meaning of Article 12 of the Constitution of India nor an instrumentality of the State. According to the learned senior counsel, the Bank is not an authority or a person within the meaning of Article 12 of the Constitution of India. Mr. Soparkar, the learned senior counsel, in support of his preliminary objection with regard to the maintainability of this writ application, has placed strong reliance on a Division Bench decision of this Court (to which I was a party) in the case of Ionic Metalliks & Ors. vs. Union of India & Ors., 2015(2) GLH 156.
14. Mr. Soparkar also invited the attention of this Court to the reply filed on behalf of the respondent No.2, duly affirmed by the Asst. General Manager, Ahmedabad Regional Office of the RBI, inter alia, stating as under;
"I, Smr. Sharmila Gonsalves wife of Shri Cyril Gonsalves, aged 55 years, residing at Ahmedabad, hereby solemnly affirm and state as under:
1. That I am working as Assistant General Manager in the Ahmedabad Regional Office of the Reserve Bank of India (hereinafter referred to as the Respondent/the bank/RBI). I am competent and authorized to sign this reply affidavit on behalf of the respondent. I further submit that I have gone through the writ petition and made myself conversant with the facts of the case.
2. This short reply affidavit is being filed for the limited purpose of opposing the petition and grant of any interim relief against RBI and for placing on record the stand of RBI. I am not filing para-wise reply to the entire petition. However, my non dealing with the petition para-
wise in its entirety should not be taken as admission on the part of the RBI of any of the allegations and averments of the petitioner. For the sake of brevity, I Page 12 of 96 C/SCA/12852/2018 JUDGMENT deny each and every allegation of the petitioner. I crave leave to tile a detailed and fuller affidavit, if required during the pendency of this petition.
3. That this Petition is wholly misconceived and devoid of merits, both in law and on facts. There is no violation of any legal and/or fundamental rights of the Petitioner. Further, the allegation about violation of the principles of natural justice is misconceived and therefore, this writ petition, under Article 226 of the Constitution of India is not maintainable and deserves to be dismissed in limine.
4. That, RBI is a statutory Corporation constituted as a Monetary and Banking Authority under the Reserve Bank of India Act, 1934 and is vested with the responsibility of Superintendence and control of the banking business in the country under the provisions of the Banking Regulations Act. The banking business of banks including the cooperative banks and propriety of their existence and non-existence etc. are subject matters of close regulation by the RBI. In the year 1965, Parliament felt it necessary to bring within the purview of the BR Act, 1949 a large number of cooperative societies carrying on banking business to prevent the emergence of weak urban banks and also to ensure the growth of co-operative banking on sound lines. By the Act 23 of 1965, called the Banking Laws (Application to Co-Operative Societies) Act, 1965, the then Banking Companies Act has been, with certain modification, made applicable to certain Co-Operative Societies, carrying on the business of banking. The Act 23 of 1965 came into effect from 1 March 1966 by inserting to the Principal Act a new Part- Part V, which consists of Section 56, providing for the application of the Banking Regulation Act, 1949 to Co-Operative Banks [B.R. Act, 1949 (AACS)]. Section 56 of the Act provides to the effect that the provisions of the Act as in force for the time being shall apply to, or in relation to, co-operative societies as they apply to banking companies, but subject to the modifications laid down in the section.
5. That in terms of Section 35 of the BR Act, 1949 (AACS), the RBI is empowered to cause an inspection of any co-operative bank and its books and accounts as well as cause a scrutiny of the affairs of the co-operative bank Page 13 of 96 C/SCA/12852/2018 JUDGMENT and its books and accounts. Further, Section 35A of the BR Act (AACS) empowers the RBI to give directions to banks in the public interest; or in the interest of banking policy; or to prevent the affairs of any bank being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the bank; and to secure the proper management of the bank. The banks are bound by the directions so issued by the RBI under Section 35-A.
6. That the RBI has in exercise of its powers conferred under Sections 21 and 35-A of the BR Act (AACS), issued directions BPD.Dir.No.5/ 13.05.00/2002-03 dated April 29, 2003 on 'Loans and advances to directors, relatives and firms/concerns in which they are interested'. The directions stipulates as under:
"No primary co-operative bank shall make, provide, or renew either secured or unsecured loans and advances or any other financial accommodation to its directors and their relatives, and the firm/companies/concerns in which they are interested."
I submit that RBI has issued the said direction in view of a number of instances that had come to its notice where because of the concentrated exposure built up by UCBs to the directors, their relatives or firms in which they are interested, the banks have run into financial problems on account of such accounts becoming NPAs. I submit that the said direction was issued in the light of the recommendation of the Joint Parliamentary Committee (JPC) which at that point of time enquired into the stock market scam. The recommendation stated that in order to prevent irregularities of the type surfaced in the case of some co- operative banks which were examined by the Committee, they are of the view that full ban on granting of loans and advances to the directors and their relatives, or the concerns in which they are interested needs to be imposed and that appropriate legal procedures may be initiated to ensure that there is no conflict of interest in the grant of loans and advances to the directors and their relatives and the concerns in which they are interested. In line with the said recommendation, the RBI had issued the said directions prohibiting the urban cooperative banks from extending any loans and advances (both Page 14 of 96 C/SCA/12852/2018 JUDGMENT secured and unsecured) to the directors, their relatives and the firms/concerns/companies in which they are interested, with immediate effect. A copy of the direction dated April 29, 2003 is produced as Annexure A.
ON MERITS
8. This affidavit is filed for the limited purpose of apprising this Hon'ble Court regarding the correct position of law and facts which lead to the issue of the letter dated September 27, 2017 to MUCBL. This affidavit is filed without prejudice to file a detailed affidavit in case the same is required at a later stage.
9. Without prejudice to the generality of the submissions made hereinabove, but relying upon the same, it is submitted that the averments and contentions in the petition, are not correct and hence denied, except to the extent specifically admitted herein. Such of the allegations that are not specifically admitted hereunder should be deemed to have been denied.
10. I deny the facts averred in the petition as misconceived, false and not correct. I submit that the petitioner has managed to avail loan facility from MUCBL in the companies in which he and his relatives are interested parties by camouflaging the entire management of the related companies in order to overcome the provisions of statutory directions issued by RBI banning loans and advances to directors and their relatives and firms/concerns in which they are interested.
11. I submit that the RBI conducted the statutory inspection of the Mehsana Urban Cooperative Bank Limited (MUCBL) with reference to its financial position as on March 31, 2016, during November and December 2016. During the inspection, several irregularities and violation of the provisions of the BR Act as well as the directions issued by the RBI from time to time, were observed. For the sake of brevity RBI is categorically dealing with only the specific finding during the inspection which is the bone of contention in the present petition.
Page 15 of 96C/SCA/12852/2018 JUDGMENT
12. That during the inspection of MUCBL with reference to its financial position as on March 31, 2016, RBI observed that MUCBL had sanctioned loans and advances to eight firms/concerns/companies in which the Directors on the Board of the bank were interested. As co-operative banks are prohibited from granting loans to firms/companies in which directors were interested, RBI had by letters dated August 10 and September 27, 2017 advised MUCBL to recall/close the eight director related/interested loan accounts and to advise the directors who are involved in connected lending to step down from the Board of the bank. The said direction was issued by the RBI to prevent the affairs of the bank being conducted in a manner detrimental to the interests of the depositors and the bank as well as to secure proper management of the bank.
13. That the eight accounts include three accounts in which the petitioner was interested viz. Vimal Dairy, Swastik Ceracon and Cengres Tiles at the time of inspection the details of which are as under:
(a) Account of Vimal Dairy Ltd.
(1) Vimal Dairy Ltd was formed in 1992 by Shri Ganpatbhai Kashiram Patel, Chairman of MUCBL who was the founder member. At the time of inspection of the bank by RBI i.e. during November and December 2016, it was observed that Shri Jayeshbhai Chandulal Patel, son of the petitioner had been the Managing Director of Vimal Dairy Ltd till June 2015. Vimal Dairy was the subsidiary of the parent company Vimal Oil and Food (VOF), where Shri Jayeshbhai Chandulal Patel was the Chairman of the company. It was observed that Vimal Dairy had opened five different current accounts with different branches of MUCBL, whereas the company was availing credit facilities from Bank of India, Mehsana.
(ii) Vimal Dairy had availed CC limit of Rs. 4616.00 lakh from Bank of India, Mehsana Branch. The account of its parent company i.e. VOF Ltd. had turned out to be NPA as on 31/03/2016 in Bank of India, Corporate branch, Ahmedabad. This was evident from the Bank of India, Mehsana branch's letter dated May 27, 2016 advising renewal of its loan facilities subject to some of the conditions such as : (i) execution of personal guarantee Page 16 of 96 C/SCA/12852/2018 JUDGMENT letter from Shri J ayesh C Patel and Shri Chandubhai I Patel (Petitioner) and Shri Ganpatbhai K Patel and two others and (ii) to submit a roadmap for exiting in the light of other account of the Group (VOFL) is NPA.
(iii) In view of Bank of India's above mentioned letter and to enable Vimal Dairy to avail loan from MUCBL, shareholding (19.35% as on March 31, 2016) was transferred by the family of the petitioner to his grandchildren and by Shri Ganpatbhai K Patel to MPYS Infratech Pvt Ltd on June 15, 2016. Thereafter, three directors were inducted into Vimal Dairy on July 20, 2016 viz. (1) Shri Jignesh Kumar Ramanbhai Patel, (ii) Shri Chintankumar Bhailabhbhai Patel and (iii) Shri Rameshbhai Dwarkadas Patel and ROC was informed; the loan of Rs.3000 lakh was sanctioned on July 22, 2016 Le. within two days of change of directors.
(iv) I submit that Vimal Dairy ceasing to be the subsidiary of Vimal Oil Foods with effect from 26/06/2015 does not mean that there was no linkage between Vimal Dairy and the directors of MUCBL, which is evident from the shareholding pattern as on 31.03.2016 available with ROC wherein it was indicated that the family members of Shri C l Patel had 19.35% shares in the company. Of which, 18.07% of shares were transferred on June 15, 2016 to the grandchildren of the petitioner (viz. Kartik J. Patel, Vimal J. Patel and Kirtan P. Patel). This is apparently to escape from the definition as given in RBI Circular of April 29, 2003 wherein grandchildren are not included.
(v) Further, it is also relevant that Shri Pradipbhai Chandubhai Patel, another son of Shri Chandubhai I Patel was a signatory to operate the account of Vimal Dairy in Mehsana Urban CBL and continued to be the signatory to operate the account of Vimal Dairy in MUCBL even after change of directorship in July 2016. Incidentally, Shri Pradipkumar C Patel son of the petitioner and his wife Mrs Jigshaben P Patel were having 437200 shares forming 7.29% of total shares of Vimal Dairy. Therefore, the averment made by the petitioner that no "relative" is a shareholder or director of Vimal Dairy to whom MUCBL provided credit facility is not acceptable the same being misconceived and false.
Page 17 of 96C/SCA/12852/2018 JUDGMENT
(vi) Further, it is also relevant to state that out of the three new directors of Vimal Dairy registered with ROC on July 20, 2016, only one director, viz. Shri Rameshbhai Dwarkadas Patel was having 216000 shares of Vimal Dairy whereas other two directors were not having any shares of the company as per shareholding as on March 31, 2016, which shows that the so called reshuffling of the Board of the company was just a camouflaging exercise to overcome the directions issued by the RBI and avail loan from MUCBL.
(vii) It was further observed during the inspection that the petitioner and his son, Shri Jayesh Chandubhai Patel had extended personal guarantee to Bank of India for the loan availed by Vimal Dairy, which has been taken over by MUCBL. From the above facts, it is explicit that the petitioner and his relatives were interested parties in the account and they have been acting in a manner detrimental to the interest of the depositors of MUCBL, the bank as well as the public interest.
(b) Account of Swastik Ceracon From the statutory inspection conducted by RBI, it was observed that Shri Jayeshbhai Chandubhai Patel, son of the petitioner was not only past director of Swastik Ceracon Ltd but was also having shares and directorship in sister concerns; viz. Akik Tiles Ltd. and Gladder Ceramics which were merged with Swastik Ceracon Ltd. As per merger documents dated May 05, 2012, Shri J C Patel was having shares in Swastik Ceracon (250000) and Akik Tiles (120000) and Gladder Ceramics (1300200).
From the shareholding pattern as on March 31, 2016, as revealed by the ROC, the family members of the petitioner had 15.12% shares in the company and Shri Keshavlal K Patel, brother of Shri G K Patel, Chairman of MUCBL had 0.9% shares in the company. Besides, other group companies viz. Vimal Energy and Vimal Dairy had 3.35% and 3.38% shares respectively in Swastik Ceracon. Thus, this is a related account of the petitioner.
(c) Other loan accounts wherein the petitioner is
interested
Page 18 of 96
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Neither MUCBL in its letter dated August 18, 2018 nor the Petitioners in the Petition mention that, there was another loan account wherein the petitioner is interested as observed by RBI during inspection of the bank as on March 31, 2016 i.e., Cengres Tiles, details of which are as under;
(i) In case of Cengres Tiles (a Private Limited company), the bank stand of MUCBL that Shri Chandubhai Ishwarlal Patel was having no interest in the firm was not true. In support of this, the bank has furnished a copy of the ROC search report containing names of three Directors as: (i) Shri Parth Rajesh Shah, (ii) Shri Rakeshbhai Kacharabhai Patel and (iii) Shri Ashish Chandravardan Patel and concluded that they were not related to the Chairman. The matter was examined during the inspection and it was observed that the names of the Directors that were shown as loan applicants were having much less percentage of shareholding in the company than the shareholding of Shri Chandubhai Ishwarlal Patel and his relatives. Out of the total paid up capital of Rs. 775.00 lakh (77.50 lakh shares of RS. 10), the shares of these three Directors aggregated to 520493 shares, forming just 6.71% of paid up share capital whereas Shri Chandubhai Ishwarbhai Patel and his family members together had total 16,15,684 shares forming 20.84% of paid UP capital of the company as on 31/03/2015 and 19.91% as on 31/03/2016.
(ii) Further, from the scrutiny of the loan account of Cengres Tiles limit Rs. 800.00 lakh), it was observed that the loan account had remained overdrawn for most of the period and was brought down within the limit on 31/03/2016 by transferring funds of Rs.245.00 lakh from another loan account (no. 0001/13/05/000281) of its sister concern M/s Swastik Ceracon. As on 31/03/2016, the account was overdrawn with outstanding balance of Rs. 805.52 lakh exceeding the limit of Rs.800.00 lakh sanctioned.
(iii) Though the loan account of Cengres Tiles was closed subsequent to RBI advice, the fact remains that at the time of RBI inspection, the account was operational and the petitioner was interested in the loan account and as a director of the bank, the loan should not have been availed by the company from the bank.
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(iv) The Petitioner thus is also guilty of suppression of material facts regarding his interest in Cengres Tiles.
14. I submit that in view of the above, allowing the petitioner to be on the Board of the co-operative bank would be detrimental to the interest of the depositors of the bank, the bank itself as well as the public interest. Therefore, the petitioner is not entitled to any relief as sought for, including any interim relief. Grant of any interim relief would jeopardise the interest of the bank and its depositors.
15. In the facts and circumstances submitted herein above, the petitioner is not entitled to any relief as prayed for against the RBI. The petitioner has failed to show any reasonable ground for seeking relief against the RBI. Therefore, it is prayed that this Hon'ble Court may be pleased to dismiss the petition as against the respondent no.2, with costs thereof.
What is stated above is true to the best of my knowledge, information and belief:
Solemnly affirmed at Ahmedabad on this 29th day of August, 2018."
15. Mr. Soparkar also invited the attention of this Court to one Addl. Affidavit filed on behalf of the RBI. The same reads thus;
"Additional Affidavit on behalf of the Respondent no.2- Reserve Bank of India.
I, Smt.Sharmila Gonsalves wife of Shri Cyril Gonsalves, aged 55 years, residing at Ahmedabad, hereby solemnly affirm and state as under:
1. I am making this additional affidavit to point out certain material and additional facts with respect to the loan account of Vimal Dairy Limited.
2. With respect to the loan A/C of Vimal Dairy Ltd, I Page 20 of 96 C/SCA/12852/2018 JUDGMENT submit the following additional facts to apprise the Hon'ble Court the actual state of affairs in sanctioning the loan to the company, which has been deliberately suppressed by the Petitioner. I submit that the loan application submitted by the company for sanction of the loan amount of Rs.30.00 crore was signed by the three new directors who were appointed as directors of the company on July 20, 2016. It is relevant to note that the said loan application submitted to MUCBL, was undated.
b) However, MUCBL's recommendation, signed by the AGM of the bank on the loan application is dated July 11, 2016. It is explicit from this that the loan application was signed by the three new directors well before their date of appointment in Vimal Dairy Ltd i e. July 20, 2016, as per the filing with ROC by the Company.
c) I submit that the Board approval was recorded on the loan application stating that the loan of Rs.30.00 crore was sanctioned vide board resolution no. 84 dated July 22, 2016 which has been signed by the CEO on the same date.
d) As stated in the affidavit filed by the RBI on August 29, 2018, Shri Pradipbhai Chandubhai Patel, another son of the Petitioner was a signatory to operate the loan account of Vimal Dairy Ltd in MUCBL and continued to be the signatory to operate the account of Vimal Dairy in MUCBL even after change of directorship in July 2016.
e) The chronology of events submitted above reveals that the change in the directors of Vimal Dairy Ltd was with the sole intention to overcome the prohibition stipulated in the directions issued by RBI. It was a camouflaging exercise to overcome the restrictions/prohibition issued by the RBI. It further reveals the malafide intention of the petitioner and his relatives in the position of the Petitioner as Chairman Emeritus in MUCBL to benefit the companies in which the Petitioner and his relatives are interested in, at the cost of the interest of the bank, its depositors and the public interest.
f) I submit that RBI felt it necessary to bring the above relevant facts to the notice of this Hon'ble Court which explicitly reveals the malafide intention in availing the Page 21 of 96 C/SCA/12852/2018 JUDGMENT loan from MUCBL to defeat the law and the directions issued by the RBI.
Solemnly affirmed at Ahmedabad on this 6th day of September, 2018. "
16. Mr. M.S. Shah, the learned counsel appearing for the writ applicant submitted that the writ application against a Multi- State Scheduled Bank is maintainable. He submitted that a writ would lie against a cooperative society when the duty owed by it is of a public nature or when there is infringement of any statutory rules by a cooperative society. According to Mr. Shah, the entire action initiated by the Bank against his client is at the instance of the RBI and the same is illegal and contrary to the principles of natural justice and, therefore, the writ application is maintainable.
17. Mr. Shah, in support of his submission that the writ application is maintainable against a cooperative society, has placed reliance on a decision of the Supreme Court in the case of Akalakunnam Village Service Cooperative Bank Limited & Anr. vs. Binu N. & Ors., (2014) 9 SCC 294
18. Mr. Dakshesh Mehta, the learned counsel appearing for the respondent No.1-Bank has also opposed this writ application on the ground of its maintainability. Mr. Mehta would submit that the Bank is not discharging any public duty. He would submit that the duty owed by the Bank is not of a public nature. There is no infringement of any statutory rules by the Bank. Mr. Mehta would submit that his client has taken the necessary steps for the removal of the writ applicant as a Director from the Board of Directors keeping in mind the guidelines and directions issued by the RBI.
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19. Mr. Mehta placed reliance on the following averments made in the affidavit-in-reply filed on behalf of the Bank. The same reads thus;
"4. I respectfully submit that this short reply on affidavit is being filed for the limited purpose of opposing the petition and grant of any interim relief to the petitioner and for placing on record that the answering respondent had already complied with the instructions given by the Reserve Bank of India which is annexed at page 92 of the Paper Book of the petition. It is respectfully submitted that as per the inspection report of the Reserve Bank of India, the two accounts of Vimal Dairy Ltd. and Swastik Cerelon Ltd. are found Director-related accounts of the petitioner and as per the direction in the letter dated 21.3.2017 given by the Reserve Bank of India, the respondent No.1 has to comply with the same.
5, It is further respectfully submitted that as per the guidelines issued by the Reserve Bank of India, vide directions BPD. Dir. No. 5/13.5.00/2002-03 dated April 29, 2003 on Loans and Advances to directors, relatives and firms/concerns in which they are interested the direction stipulates as under:
"No primary coop. bank shall make, provide or renew either secured or unsecured loan and advances or any other financial accommodation to its directors and firms/companies/concerns in which they are interested."
Definition of a relative: A person shall be deemed to be relative of another if and only if (1) they are members of a Hindu Undivided Family or (2) they are husband and wife or (3) the one is related to the other in the manner indicated below:
List of relative (1) Father (2) Mother including step mother ' (3) son including step son (4) son's wife (5) daughter including step daughter (6) Daughter's husband (7) brother (including step brother) (8) Brother's wife (9) sister (including step sister) (10) Sister's husband uni/sen/DIR-Ban on loan to directors)."Page 23 of 96
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6. It is respectfully submitted that the respondent No.1 has provided information and explanation to the audit objection of the Reserve Bank of India. Also while sanctioning the loan proposal there is a procedure to obtain declaration from the promoters/applicants that they are not relatives of any director on Board of Directors of the Bank. After obtaining the said declaration the amounts are disbursed to the borrowers. This is the normal practice of the Bank.
7. It is respectfully submitted that as per the instructions of the Reserve Bank of India the meetings of the Board of Directors was held on 18.8.2018 and the resolution No. 159 was passed unanimously in the Board meeting. Xerox copy of the certified true copy of the said resolution is annexed at ANNEXURE-I to this reply.
8. It is respectfully submitted that thereafter the respondent Bank has issued letter dated 27.8.2018 in compliance and implementation of the instructions issued by the Reserve Bank of India after following the due process of law which was served to the petitioner and it is accepted by the petitioner with endorsement "with protest". Xerox copy of the letter dated 27.8.2018 is annexed hereto and marked as ANNEXURE-II to this reply."
20. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for my consideration is whether this writ application under Article 226 of the Constitution of India against a Multi-State Scheduled Cooperative Bank is maintainable in law?.
21. I may in this regard at the outset notice that the Apex Court in Supriyo Basu Vs. West Bengal Housing Board, (2005) 6 SCC 289 held that a Co-operative Society is constituted on agreement between the members thereof who had agreed to abide by the provisions of the Co-operative Societies Act and the Rules framed thereunder or the bye-laws Page 24 of 96 C/SCA/12852/2018 JUDGMENT framed by the Society; that where the society is not a department of the State and is also not a creature of a statute but merely governed by a statute, only if it is established that the mandatory provision of a statute has been violated, would a writ petition be maintainable thereagainst. Referring to U.P. State Co-operative Land Development Bank Ltd. Vs. Chandra Bhan Dubey (1999) 1 SCC 741, it was held that the question to be considered in determining whether a writ petition would lie against a Co-operative Society is, what is the nature of the statutory duty placed on it and the Court is to enforce such statutory public duty.
22. Reference may also be made to S.S. Rana Vs. Registrar, Co- operative Societies (2006) 11 SCC 634 which was a case of termination by Kangra Central Co-operative Bank Ltd. constituted under the Himachal Pradesh Co-operative Societies Act, 1968 of the services of its Branch Manager. The contention of the Branch Manager in that case was that the activities of the Co-operative Society being to lend money to the agriculturists, the same would come within the purview of Pradeep Kumar Biswas Vs. Indian Institute of Chemical Biology MANU/SC/0330/2002 and the writ petition alleging the termination to be contrary to rules, bye-laws and principles of natural justice would be maintainable. The Supreme Court held that where a Society has not been constituted under an Act and functions like any other Co-operative Society and is merely regulated by the Co-operative Societies Act and where the State has no say in the functions of the Society, and where the membership, acquisition of shares and all other matters are governed by the bye-laws framed under the Act and the State is not the majority shareholder of the Society and does not Page 25 of 96 C/SCA/12852/2018 JUDGMENT exercise any direct or indirect control over the affairs of the Society for deep and pervasive control and the State has only to nominate one Director, it could not be said that the State exercises any functional control over the affairs of the Society. It was further held that several other relevant questions required to be considered in deciding whether writ would lie against the Society are, (i) How the Society was created; (ii) Whether it enjoys any monopoly character; (iii) Do the functions of the Society partake to statutory functions or public functions; and (iv) Can it be characterized as public Authority. The Kangra Central Co-operative Bank Ltd. was held to be not answering any of the aforesaid tests. It was held that the general regulations like the Companies Act or the Co-operative Societies Act would not render the activities of a Company or a Society as subject to control of the State and the purpose of the provisions of the Companies Act or the Co- operative Societies Act is only to ensure proper functioning of the Society and the State or the statutory authorities as the Registrar Co- operative Societies would have nothing to do with the day-to- day functioning of the Society.
23. I may notice that the writ petition, as filed, does not contain any pleadings whatsoever as to the nature, character or constitution of the respondent No.1-Bank or as to the maintainability of the writ application against the respondent No.1-Bank and presumes the writ application to be maintainable. Upon objection being taken by the respondents, the maintainability of the writ application is justified only for the reason of the control exercised by the Central Registrar, Multi-State Cooperative Societies under the Multi-State Cooperative Societies Act and further that the entire action Page 26 of 96 C/SCA/12852/2018 JUDGMENT taken by the bank is at the instance of the RBI. To put it in other words, the submission canvassed on behalf of the writ applicant is that as the action is at the behest of the RBI and other statutory authorities and the impugned order has also been passed by the bank in accordance with the directions of the RBI and the Government of India, in substance, it could be said that the impugned order has been passed by an 'authority' falling within the Article 12 of the Constitution.
24. The respondent No.1-Bank has a distinct personality and legal entity. It is not a body constituted by the State Government or the Central Government. It is a Multi-State Cooperative Society incorporated under the Multi-State Cooperative Societies Act. Mere regulatory control of the RBI under a statute is not sufficient. The objective purpose of applying the various tests is to decipher whether the body is really an agency of the Government. If a body is not an agency of the Government, it is not an "Authority" within the meaning of Article 12 of the Constitution of India.
25. Article 226 of the Constitution of India is plenary in nature and confers powers on the High Court of the country to issue writs. The said Article reads as under;
"1. Notwithstanding anything in Article 32 every High Court shall have power, throughout the territories in relation to which it exercises jurisdiction, to issue to any person or authority, including in appropriate cases, any Government, within those territories directions, orders or writs, including writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari, or any of them, for the enforcement of any of the rights conferred by Part III and for any other purpose."Page 27 of 96
C/SCA/12852/2018 JUDGMENT 26. The said Article states that every High Court has
jurisdiction to issue appropriate writs against any authority for enforcement of rights conferred by Part III or for 'any other purpose' . The said Article also states that writs can be issued to 'any person'. The expression 'any person' and 'for any other purpose' have been explained and elucidated upon by the Supreme Court in its various decisions.
27. The very reading of the Article 226 shows that the High Court has power to issue writs or orders even against any person for the enforcement of fundamental rights or for any other purpose. The question which arises for decision is: whether a writ or an order could be issued by the High Court under Article 226 of the Constitution against a cooperative society which, no doubt, is covered by the definition of "person" to enforce any statutory provisions by which the said society may be governed?
28. The rule of law is all pervasive in so far as our constitution is concerned. The three important wings of the Government, namely, legislative, executive and judicial, all the public authorities created by constitution or by the statute are amenable to the rule of law. It is axiomatic that a private person is not to be governed by law. The question is of remedy which should be available against a private person for enforcing the provisions of the statute which may be applicable to a private person. The writ jurisdiction conferred on the High Court under Article 226 is not a substitute for the legal remedies or forums available to the citizens for enforcing legal liabilities against particular citizens or authorities. The Page 28 of 96 C/SCA/12852/2018 JUDGMENT writ jurisdiction is in the field of public law. The writ jurisdiction has its origin in the English law. In English law also there has taken place vast changes which have been discussed by H.M. Seervai in the Constitutional Law of India, Volume II, 3rd Edition, at pages 1221 onwards. The learned author has observed that:-
"Since 1950 the concept of public law has been greatly enlarged. Secondly, they show that the restrictions imposed on the grant of mandamus by the Lewisham Case could not be sustained because they deprived mandamus of its essential character as a public law remedy. Since private law remedies and public law remedies were granted by the same Courts, the Courts were slow to realize the full implications of the public law aspect of prerogative writs and the consequences which flowed from that aspect. This implication has been. admirably brought oui by Prof. Schwartz and Prof. H.W.R.Wade. Referring to the prerogative remedies of certiorari, prohibition and mandamus, they wrote:- "The important aspect of the prerogative remedies is that they belong exclusively to public law (with the exception of habeas corpus), their primary object being to make the machinery object being to make the machinery of government work properly rather than to enforce private rights. This introduces a valuable 'public interest' element. An application for certiorari is, as the title of the case indicates, a proceeding by the Queen to call some public authority to account for exceeding or abusing its power. Similarly in a suit for mandamus the Queen is calling for the proper discharge of some public duty. Although private persons are of course the real plaintiffs, the public character of the proceedings is more than a mere form."
29. Generally speaking an order of mandamus is a command directed towards any person, corporation of inferior tribunal requiring them to do some practical thing which pertains to his or their office and is in the nature of public duty. An order of Page 29 of 96 C/SCA/12852/2018 JUDGMENT certiorari is an order directing an inferior tribunal requiring the record of the proceedings in some case or matter to be transmitted into the High Court to be dealt with there. The learned author while discussing the Indian law at page 1324 of the Same edition has observed as follows:-
"HOWEVER,soon after the Constitution come into force, the wide terms of Article 226 were emphasized to support the contention that the High Courts were not limited to issuing directions or writs expressly mentioned in the Article but could issue "any order or direction" against "any person" for "any other purpose", that is, for "any purpose other than the enforcement of fundamental rights". This contention was negatived in a number of cases, where the petitioners asked for reliefs to which they were not entitled according to well-settled principles governing the issue of prerogative writs. Thus, in In re Nagabhushana, (1950) Madras 1119, the petitioner asked for a writ of prohibition against the various organs of a political party. In re Kallumattam Thippaswami, (1951) 2 M.L.J. 171, the guardian of a minor prayed for writ of mandamus restraining the respondents, who were private parties, from cutting trees standing on certain survey numbers. In Indian Tobacco Corpn. Vs. Madras, (1954) Madras 754, the petitioner asked for a mandamus restraining the respondents from committing an alleged anticipatory breach of contract. The broad contention in these cases was that Article 226 gave the court jurisdiction even to decide private disputes. The following propositions emerge from the cases rejecting that contention: (1) The literal construction of Article 226 could not have been intended because "it would enable any person to obtain any relief by an application under this Article. This construction of the Article would practically abrogate the entire judicial system and the machinery set up for the administration of justice in the State." (2) There is internal evidence in Article 226 that the words "to any person" and "for any purpose" cannot be construed literally. For, whatever other power Article 226 confers on the High Courts, it undoubtedly confers the power to issue writs in the nature of habeas corpus, mandamus, prohibition, certiorari and quo warranto. But Page 30 of 96 C/SCA/12852/2018 JUDGMENT these writs cannot be issued "to any person" and "for any purpose". The purposes for which, and the persons to whom, these writs can be issued have long been well settled. Therefore, the power to issue writs of the nature expressly mentioned "to any person" can only mean "the power to issue such a writ to any person to whom, according to well established principles the writ lay". And the words "for any other purpose" must mean "for any other purpose for which any of the writs would according to well-established principles issue" the word "other" being read in antithesis to "for the enforcement of fundamental rights". It is submitted that from the propositions set out in (2) above the following proposition must follow:- (3) Orders, directions or writs are to be issued "to any person" and for "any purpose", once the meaning of these words is ascertained with reference to writs, a different meaning cannot be given to them with reference to "orders" or "directions". Nor should this surprise us. In England, the writs of mandamus, certiorari and prohibition were replaced by "orders" of the same name in 1938; the writ of quo warranto was replaced first by information in the nature of quo warranto, and later by an injunction-that is, an order of the court. In India the writs of habeas corpus and mandamus were replaced by "directions" in the nature of, habeas corpus and by "directions" in the nature of mandamus by Section 491, Cr. P.C. and Section 45, Specific Relief Act, 1877, respectively. The words "orders" and "directions" were used to describe what at one time were called writs, and since the terminology had been in use in England and in India, all the three words have been used in Article 226 to describe well-recognized English writs. (4) Article 226 should not be construed so as to replace the ordinary remedies by way of a suit and application available to the litigant under the general law of the land."
30. At page 1377 in para 16.289, it was again emphasized by the learned author that mandamus lies against a person holding a public office or against a corporation or inferior court for the enforcement of duties, which under any law for the time being in force, are clearly incumbent upon such person or court in his or its public character or of such corporation in its Page 31 of 96 C/SCA/12852/2018 JUDGMENT corporate character. At page 1383 the author again observed that as mandamus lies to secure the discharge of public duties which are clearly incumbent under the law for time being in force, it will not lie against private parties or for the enforcement of contractual rights.
31. It is true that 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 cooperative banks 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.
32. A cooperative society 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.
33. I don't find such conditions are fulfilled in respect of a cooperative bank carrying on a commercial activity of banking.
34. Mr. Shah, the learned counsel appearing for the writ
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applicant placed strong reliance on the decision of the
Supreme Court in the case of Akalakunnam (supra). I take
notice of the fact that in the said case, circulars were issued under Rule 182 (5) of the Kerala Cooperative Societies Rules by the Government and Registrar, Cooperative Societies laying down the guidelines and procedure regarding the selection by conducting examination and interview for the appointment of the subordinate staff. The notification issued by the Cooperative Bank regarding process of selection for the post of Attenders/Peons in violation of the statutory circulars was made a subject matter of challenge by way of a writ petition. The High Court quashed the notification issued by the Bank. In such circumstances, the Bank went before the Supreme Court. The Supreme Court took the view that the circulars issued under Rule 182(5) of the Rules being statutory in nature, and having statutory force, the writ petition against the Bank's notification was maintainable. There is no further discussion in the said decision of the Supreme Court as regards the public functions or public duties, if any, being performed by the Bank.
35. Let me also look into the Division Bench decision of this Court in the case of Ionic Metalliks (supra), on which strong reliance has been placed by the learned senior counsel appearing for the RBI as well as by the learned councel appearing for the Bank. I may refer to the relevant observations of the Division Bench as regards the maintainability of a writ petition against a private bank.
"154.The same is the problem so far as the show-cause notice issued to the petitioners of Special Civil Application No.10120 of 2014 is concerned. However, the question is, whether we can look into the same and issue an appropriate writ, order or direction to a Standard Page 33 of 96 C/SCA/12852/2018 JUDGMENT Chartered Bank which, although is a scheduled bank figuring in a Second Schedule to the Reserve Bank of India Act, 1934, yet is a private bank. Such being the position, whether the Standard Chartered Bank would be amenable to the writ jurisdiction of this Court under Article 226 of the Constitution of India, is a question which we need to consider.
155. In the case of Ajay Hasia v. Khalid Mujib, AIR 1981 SC 487, the Supreme Court laid down certain relevant tests for determining whether a company/society/corporation can be held to be an agency or instrumentality of the State Government. These tests are as under :--
(1) One thing is clear that if the entire share capital of the corporation is held by Govt. it would go a long way towards indicating that the corporation is an instrumentality or agency of Government.
(2) Where the financial assistance of the State is so much as to meet almost entire expenditure of the corporation, it would afford Some indication of the corporation being impregnated with governmental character.
(3) It may also be a relevant factor .... whether the corporation enjoys monopoly status which is the State conferred or State protected.
(4) Existence of 'deep and pervasive State control may afford an indication that the Corporation is a State Agency or instrumentality.
(5) If the functions of the corporation of Public importance and closely related to governmental functions it would be a relevant factor in classifying the corporation as an instrumentality or agency of Govt.
(6) Specifically, if a department of Govt. is transferred to Page 34 of 96 C/SCA/12852/2018 JUDGMENT a corporation, it would be a strong factor supportive of this inference of the Corporation being an instrumentality or agency of Government.
156 Proceeding further, the Supreme Court held that it was immaterial whether the corporation was created by a statute or under a state. The test is whether it is an instrumentality or agency of the Government and not as to how it was created. In the said case their Lordships proceeded to observe that the Government may act through the instrumentality or agency of a natural person or it may employ the instrumentality or agency of juridical person to carry out its functions. The test is that it will be considered to be an agency and instrumentality of the State. It is true that the corporation is a distinct juristic entity with a corporate structure of its own and it carries on its functions on business principles with a certain amount of autonomy which is necessary as well as useful from the point of view of effective business management but behind the formal ownership which is cast in the corporate mould, the reality is very much the deeply pervasive presence of the Government, and it is in fact the Government which acts through the instrumentality or. agency of the corporation or the juristic person. If the instrumentality and agency of the Govt. discharges the Governmental functions it must be subject to same limitations in the field of constitutional law as the Government itself, though in the eye of the law it would be a distinct and independent legal entity. In Ajay Hasia's case (supra), the Supreme Court was considering the obligations of instrumentalities and agencies of the Government to respect the fundamental rights of the citizens and they were held to be bound to enforce the fundamental rights guaranteed to the citizens of India under Part III of the Constitution of India. If this binding was not there, the fundamental rights in the opinion of the Supreme Court would then be reduced to an idle dream or a promise of unreality. Because in the constitution philosophy of a democratic socialist public Govt. has to undertake a multitude of socio-economic operations and the Govt. having regard to the practical advantages of functioning through the legal device of a corporation by resorting to create instrumentalities or agencies which will not exonerate the Govt. itself from Page 35 of 96 C/SCA/12852/2018 JUDGMENT obeying the fundamental rights of the citizens. In the context of enforcing fundamental rights, the Supreme Court laid emphasis that by process of judicial construction fundamental rights cannot be rendered futile and meaningless. Because in the opinion of the Apex Court, it is the fundamental rights which alone with the directive principles constitute the life force of the Constitution of India and they must be put into effective action by meaningful and purposeful interpretation. Therefore, it was observed that if a corporation or a company is the instrumentality or agency of Government, it must be held to be an authority within the meaning of Article 12 of the Constitution and subject to the same basic obligation to obey the fundamental rights as the Government.
157. Applying the test nos.1 and 2 to the facts of the case on hand, no materials have been placed on record to even remotely indicate that the share capital of the bank is held by the Central Government or the State Government, or the bank is dependent upon the Government for financial assistance. There is nothing to even remotely suggest that the Standard Chartered Bank enjoys any monopoly status conferred by the State. With regard to the fourth test, there is nothing to indicate existence of deep and pervasive State control. All that can be said is that the directives of the Reserve Bank of India are binding on the bank. With regard to the fifth test, although it has been very vociferously submitted by Mr.Shelat, the learned appearing on behalf of the petitioners, that the functions of the bank are of public importance and further the bank could be said to be discharging a public function which is akin to a Governmental function, yet this argument pales into insignificance in view of the decision of the Supreme Court in the case of Federal Bank Limited v. Sagar Thomas and others, (2003)10 SCC 733. We shall discuss the decision of the Supreme Court in the case of Federal Bank Limited (supra) a little later.
158 While dealing with the test based on functions of the Coirporation of public importance, the Supreme Court in Ramana Dayaram Shetty's case, AIR 1979 SC 1628, Page 36 of 96 C/SCA/12852/2018 JUDGMENT referred to E.S.Evans v. Charles E.Newton, (1966)382 US 296 and Smith v. Allwright, (1943)32 US 649, and observed that the decisions show that the test of public or governmental character of the function is not easy of application and does not invariably lead to the correct inference because the range of governmental activity is broad and varied and merely because an activity may be such as may legitimately be carried on by Government, it does not mean that a Corporation which is otherwise a private entity, would be an instrumentality or agency of the Government by reason of carrying of such activity. In applying the test, therefore, a further precaution is to be taken and it is to be seen whether the public nature of the function is impregnated with governmental character or tied or entwined with Government or fortified by some other additional factor (vide observations in para 18 column 2 at page 641). In our view, therefore, the fifth test is also not satisfied.
159. Thus, so far as the tests laid down by the Supreme Court in the case of Ajay Hasia (supra) is concerned, none of the tests could be said to be fulfilled so as to make the Standard Chartered Bank, a private bank, amenable to the writ jurisdiction of this Court.
160. In Pradeep Kumar Biswas v. Indian Institute of Chemical Biology and others, (2002)5 SCC 111, the Supreme Court considered the issue as regards Article 12 of the Constitution of India at length. We quote the following observations of the Supreme Court :
What is 'Authority' and when includible in 'other authorities', re: Article 12 We have, in the earlier part of this judgment, referred to the dictionary meaning of 'authority', often used as plural, as in Article 12 viz. 'other authorities'. Now is the time to find out the meaning to be assigned to the term as used in Article 12 of the Constitution.
A reference to Article 13(2) of the Constitution is Page 37 of 96 C/SCA/12852/2018 JUDGMENT apposite. It provides--
"13(2). The State shall not make any law which takes away or abridges the right conferred by this part and any law made in contravention of this clause shall, to the extent of the contravention, be void."
Clause (3) of Article 13 defines 'law' as including any Ordinance, order, bye-law, rule, regulation, notification, custom or uses having in the territory of India the force of law. We have also referred to the speech of Dr. B.R. Ambedkar in Constituent Assembly explaining the purpose sought to be achieved by Article 12. In RSEB's case, the majority adopted the test that a statutory authority "would be within the meaning of 'other authorities' if it has been invested with statutory power to issue binding directions to the parties, disobedience of which would entail penal consequences or it has the sovereign power to make rules and regulations having the force of law".
In Sukhdev Singh's case, the principal reason which prevailed with A.N. Ray, CJ for holding ONGC, LIC and IFC as authorities and hence 'the State' was that rules and regulations framed by them have the force of law. In Sukhdev Singh's case, Mathew J. held that the test laid down in RSEB's case was satisfied so far as ONGC is concerned but the same was not satisfied in the case of LIC and IFC and, therefore, he added to the list of tests laid down in RSEB's case, by observing that though there are no statutory provisions, so far as LIC and IFC are concerned, for issuing binding directions to third parties, the disobedience of which would entail penal consequences, yet these corporations (i) set up under statutes, (ii) to carry on business of public importance or which is fundamental to the life of the people ___ can be considered as the State within the meaning of Article 12. Thus, it is the functional test which was devised and utilized by Mathew J. and there he said, "the question for consideration is whether a public Page 38 of 96 C/SCA/12852/2018 JUDGMENT corporation set up under a special statute to carry on a business or service which Parliament thinks necessary to be carried on in the interest of the nation is an agency or instrumentality of the State and would be subject to the limitations expressed in Article 13(2) of the Constitution. The State is an abstract entity. It can only act through the instrumentality or agency of natural or juridicial persons. Therefore, there is nothing strange in the notion of the State acting through a corporation and making it an agency or instrumentality of the State".
It is pertinent to note that functional tests became necessary because of the State having chosen to entrust its own functions to an instrumentality or agency in absence whereof that function would have been a State activity on account of its public importance and being fundamental to the life of the people.
The philosophy underlying the expansion of Article 12 of the Constitution so as to embrace within its ken such entitites which would not otherwise be the State within the meaning of Article 12 of the Constitution has been pointed out by the eminent jurist H.M. Seervai in Constitutional Law of India (Silver Jubilee Edition, Vol.1).
"The Constitution should be so interpreted that the governing power, wherever located, must be subjected to fundamental constitutional limitations............ Under Article 13(2) it is State action of a particular kind that is prohibited.
Individual invasion of individual rights is not, generally speaking, covered by Article 13(2). For, although Articles 17, 23 and 24 show that fundamental rights can be violated by private individuals and relief against them would be available under Article 32, still, by and large, Article 13(2) is directed against State action. A public corporation being the creation of the State, is subject to the same constitutional limitations as the State itself. Two conditions are necessary, namely, that the Corporation must be created by the State Page 39 of 96 C/SCA/12852/2018 JUDGMENT and it must invade the constitutional rights of individuals"(Para 7.54). "The line of reasoning developed by Mathew J. prevents a large-scale evasion of fundamental rights by transferring work done in Govt. Departments to statutory Corporations, whilst retaining Govt. control. Company legislation in India permits tearing of the corporate veil in certain cases and to look behind the real legal personality. But Mathew J. achieved the same result by a different route, namely, by drawing out the implications of Article 13(2)" (Para 7.57 ibid).
The terms instrumentality or agency of the State are not to be found mentioned in Article 12 of the Constitution. Nevertheless they fall within the ken of Article 12 of the Constitution for the simple reason that if the State chooses to set up an instrumentality or agency and entrusts it with the same power, function or action which would otherwise have been exercised or undertaken by itself, there is no reason why such instrumentality or agency should not be subject to same constitutional and public law limitations as the State would have been. In different judicial pronouncements, some of which we have reviewed, any company, corporation, society or any other entity having a juridical existence if it has been held to be an instrumentality or agency of the State, it has been so held only on having found to be an alter ego, a double or a proxy or a limb or an off-spring or a mini- incarnation or a vicarious creature or a surrogate and so on __ by whatever name called __ of the State. In short, the material available must justify holding of the entity wearing a mask or a veil worn only legally and outwardly which on piercing fails to obliterate the true character of the State in disguise. Then it is an instrumentality or agency of the State.
It is this basic and essential distinction between an 'instrumentality or agency' of the State and 'other authorities' which has to be borne in mind. An authority must be an authority sui juris to fall within the meaning of the expression 'other authorities' under Article 12. A juridical entity, though an authority, may also satisfy the test of being an instrumentality or agency of the State in Page 40 of 96 C/SCA/12852/2018 JUDGMENT which event such authority may be held to be an instrumentality or agency of the State but not the vice versa.
We sum up our conclusions as under:-
(1) Simply by holding a legal entity to be an instrumentality or agency of the State it does not necessarily become an authority within the meaning of 'other authorities' in Article 12. To be an authority, the entity should have been created by a statute or under a statute and functioning with liability and obligations to public. Further, the statute creating the entity should have vested that entity with power to make law or issue binding directions amounting to law within the meaning of Article 13(2) governing its relationship with other people or the affairs of other people __ their rights, duties, liabilities or other legal relations. If created under a statute, then there must exist some other statute conferring on the entity such powers. In either case, it should have been entrusted with such functions as are governmental or closely associated therewith by being of public importance or being fundamental to the life of the people and hence governmental. Such authority would be the State, for, one who enjoys the powers or privileges of the State must also be subjected to limitations and obligations of the State. It is this strong statutory flavour and clear indicia of power __ constitutional or statutory, and its potential or capability to act to the detriment of fundamental rights of the people, which makes it an authority; though in a given case, depending on the facts and circumstances, an authority may also be found to be an instrumentality or agency of the State and to that extent they may overlap. Tests 1, 2 and 4 in Ajay Hasia enable determination of Governmental ownership or control. Tests 3, 5 and 6 are 'functional' tests. The propounder of the tests himself has used the words suggesting relevancy of those tests for finding out if an entity was instrumentality or agency of the State. Unfortunately thereafter the tests were considered relevant for testing if an authority is the State and this fallacy has occurred because of difference between 'instrumentality and agency' of the State and an 'authority' having been lost sight of sub-silentio, Page 41 of 96 C/SCA/12852/2018 JUDGMENT unconsciously and un-deliberated. In our opinion, and keeping in view the meaning which 'authority' carries, the question whether an entity is an 'authority' cannot be answered by applying Ajay Hasia tests.
(2) The tests laid down in Ajay Hasia's case are relevant for the purpose of determining whether an entity is an instrumentality or agency of the State. Neither all the tests are required to be answered in positive nor a positive answer to one or two tests would suffice. It will depend upon a combination of one or more of the relevant factors depending upon the essentiality and overwhelming nature of such factors in identifying the real source of governing power, if need be by removing the mask or piercing the veil disguising the entity concerned. When an entity has an independent legal existence, before it is held to be the State, the person alleging it to be so must satisfy the Court of brooding presence of government or deep and pervasive control of the government so as to hold it to be an instrumentality or agency of the State.
(Emphasis supplied) 161 In Jatyapal Singh and others v. Union of India and others, (2013)6 SCC 452, the Supreme Court reiterated the tests for considering, whether a body falls within the definition of State under Article 12 of the Constitution of India.
162 The tests propounded for determining as to when the Corporation will be said to be an instrumentality or agency of the Government as stated in Ramana Dayaram Shetty v. International Airport Authority of India, (1979)3 SCC 489, were summarized as follows :
(1) One thing is clear that if the entire share capital of the corporation is held by Government, it would go a long way towards indicating that the corporation is an instrumentality or agency of Government.
Page 42 of 96C/SCA/12852/2018 JUDGMENT (2) Where the financial assistance of the State is so much as to meet almost entire expenditure of the corporation, it would afford some indication of the corporation being impregnated with governmental character.
(3) It may also be a relevant factor ⬦ whether the corporation enjoys monopoly status which is State- conferred or State-protected.
(4) Existence of deep and pervasive State control may afford an indication that the corporation is a State agency or instrumentality.
(5) If the functions of the corporation are of public importance and closely related to governmental functions, it would be a relevant factor in classifying the corporation as an instrumentality or agency of Government.
(6) Specifically, if a department of Government is transferred to a corporation, it would be a strong factor supportive of this inference of the corporation being an instrumentality or agency of Government.
163. The aforesaid ratio in Ramana Dayaram Shetty (supra) has been consistently followed by the Supreme Court, as is evident from paragraph 31 of the judgment in Biswas (supra). Para 31 reads as under :
31. The tests to determine whether a body falls within the definition of 'State' in Article 12 laid down in Ramana with the Constitution Bench imprimatur in Ajay Hasia form the keystone of the subsequent jurisprudential superstructure judicially crafted on the subject which is apparent from a chronological consideration of the authorities cited.
164. The subsequent paragraphs of the judgment noticed the efforts made to further define the contours Page 43 of 96 C/SCA/12852/2018 JUDGMENT within which to determine, whether a particular entity falls within the definition of other authority, as given in Article 12. The ultimate conclusion of the Constitution Bench are recorded in paragraph 39 and 40 as under :-
39. Fresh off the judicial anvil is the decision in Mysore Paper Mills Ltd. v. Mysore Paper Mills Officers' Assn., (2002)2 SCC 167, which fairly represents what we have seen as a continuity of thought commencing from the decision in Rajasthan Electricity Board in 1967 up to the present time. It held that a company substantially financed and financially controlled by the Government, managed by a Board of Directors nominated and removable at the instance of the Government and carrying on important functions of public interest under the control of the Government is 'an authority' within the meaning of Article 12.
40.The picture that ultimately emerges is that the tests formulated in Ajay Hasia are not a rigid set of principles so that if a body falls within any one of them it must, ex hypothesi, be considered to be a State within the meaning of Article 12. The question in each case would be, whether in the light of the cumulative facts as established, the body is financially, functionally and administratively dominated by or under the control of the Government. Such control must be particular to the body in question and must be pervasive. If this is found then the body is a State within Article 12. On the other hand, when the control is merely regulatory whether under statute or otherwise, it would not serve to make the body a State.
165. In our opinion, the functions of the Standard Chartered Bank as one of the Scheduled Banks under the Reserve Bank of India Act, 1934, cannot be regarded as Governmental or of essential public importance or as closely related to Governmental functions or being fundamental to the life of the people and duties and obligations to the public at large. The bank has its own resources to raise its funds without any contribution or shareholding by the State. It is not in dispute that it has its own Board of Directors. It works like any other private company in the banking business.
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166. In the aforesaid context, it will be profitable for us to look into a decision of the Supreme Court in the case of Federal Bank Limited v. Sagar Thomas and others, (2003)10 SCC 733. In the said case, the respondent no.1 was working as a Branch Manager in the Federal Bank. He was suspended on 29th May 1982 since a disciplinary inquiry was ordered into some charges of misconduct. The Inquiry Officer found him guilty of the charges and ultimately awarded punishment of dismissal. The respondent no.1 challenged his dismissal by filing a writ petition in the High Court. A preliminary objection to the maintainability of the writ petition was taken by the appellant Bank, saying that it was a private bank and not a State or its agency or instrumentality within the meaning of Article 12 of the Constitution of India. The learned Single Judge of the High Court, however, found that the Federal Bank performed a public duty, and as such, it would get covered under the definition of 'other authority' within the meaning of Article 12, and as such, the writ petition was maintainable. The order passed by the learned Single Judge was carried in appeal and the appeal was also dismissed. The Federal Bank challenged the order passed by the High Court, dismissing the appeal, before the Supreme Court. The question which fell for the consideration before the Supreme Court on appeal was, whether the appellant Bank was a private body or fell within the definition of a State or legal or other authorities under the control of the Government within the meaning of Article 12 of the Constitution of India.
167. The observations of the Supreme Court as contained in paragraphs 26 to 33 are worth noting :
26. A company registered under the Companies Act for the purposes of carrying on any trade or business is a private enterprise to earn livelihood and to make profits out of such activities. Banking is also a kind of profession and a commercial activity, the primary motive behind it can well be said to earn returns and profits. Since time immemorial, such activities have been carried on by Page 45 of 96 C/SCA/12852/2018 JUDGMENT individuals generally. It is a private affair of the company though case of nationalized banks stands on a different footing. There may, well be companies, in which majority of the share capital may be contributed out of the State funds and in that view of the matter there may be more participation or dominant participation of the State in managing the affairs of the company. But in the present case we are concerned with a banking company which has its own resources to raise its funds without any contribution or shareholding by the State. It has its own Board of Directors elected by its shareholders. It works like any other private company in the banking business having no monopoly status at all. Any company carrying on banking business with a capital of five lacs will become a scheduled bank. All the same, banking activity as a whole carried on by various banks undoubtedly has an impact and effect on the economy of the country in general. Money of the shareholders and the depositors is with such companies, carrying on banking activity. The banks finance the borrowers on any given rate of interest at a particular time. They advance loans as against securities. Therefore, it is obviously necessary to have regulatory check over such activities in the interest of the company itself, the shareholders, the depositors as well as to maintain the proper financial equilibrium of the national economy. The Banking companies have not been set up for the purposes of building economy of the State on the other hand such private companies have been voluntarily established for their own purposes and interest but their activities are kept under check so that their activities may not go wayward and harm the economy in general. A private banking company with all freedom that it has, has to act in a manner that it may not be in conflict with or against the fiscal policies of the State and for such purposes, guidelines are provided by the Reserve Bank so that a proper fiscal discipline, to conduct its affairs in carrying on its business, is maintained. So as to ensure adherence to such fiscal discipline, if need be, at times even the management of the company can be taken over. Nonetheless, as observed earlier, these are all regulatory measures to keep a check and provide guideline and not a participatory dominance or control over the affairs of the company. For other companies in general carrying on other business activities may be manufacturing, other industries or any business, such checks are provided Page 46 of 96 C/SCA/12852/2018 JUDGMENT under the provisions of the Companies Act, as indicated earlier. There also, the main consideration is that the company itself may not sink because of its own mismanagement or the interest of the shareholders or people generally may not be jeopardized for that reason. Besides taking care of such interest as indicated above, there is no other interest of the State, to control the affairs and management of the private companies. The care is taken in regard to the industries covered under the Industries (Development and Regulation) Act, 1951 that their production which is important for the economy may not go down yet the business activity is carried on by such companies or corporations which only remains a private activity of the entrepreneurs/companies.
27. Such private companies would normally not be amenable to the writ jurisdiction under Article 226 of the Constitution. But in certain circumstances a writ may issue to such private bodies or persons as there may be statutes which need to be complied with by all concerned including the private companies. For example, there are certain legislations like the Industrial Disputes Act, the Minimum Wages Act, the Factories Act or for maintaining proper environment say Air (Prevention and Control of Pollution) Act, 1981 or Water (Prevention and Control of Pollution) Act, 1974 etc. or statutes of the like nature which fasten certain duties and responsibilities statutorily upon such private bodies which they are bound to comply with. If they violate such a statutory provision a writ would certainly be issued for compliance of those provisions. For instance, if a private employer dispense with the service of its employee in violation of the provisions contained under the Industrial Disputes Act, in innumerable cases the High Court interfered and have issued the writ to the private bodies and the companies in that regard. But the difficulty in issuing a writ may arise where there may not be any non-compliance or violation of any statutory provision by the private body. In that event a writ may not be issued at all. Other remedies, as may be available, may have to be resorted to.
28. The six factors which have been enumerated in the case of Ajay Hasia (supra) and approved in the later Page 47 of 96 C/SCA/12852/2018 JUDGMENT decisions in the case of Ramana (supra) and the seven Judges Bench in the case of Pradeep Kumar Biswas (supra) may be applied to the facts of the present case and see as to those tests apply to the appellant bank or not. As indicated earlier, share capital of the appellant bank is not held at all by the government nor any financial assistance is provided by the State, nothing to say which may meet almost the entire expenditure of the company. The third factor is also not answered since the appellant bank does not enjoy any monopoly status nor it can be said to be an institution having State protection. So far control over the affairs of the appellant bank is concerned, they are managed by the Board of Directors elected by its shareholders. No governmental agency or officer is connected with the affairs of the appellant bank nor anyone of them is a member of the Board of Directors. In the normal functioning of the private banking company there is no participation or interference of the State or its authorities. The statutes have been framed regulating the financial and commercial activities so that fiscal equilibrium may be kept maintained and not get disturbed by the malfunctioning of such companies or institutions involved in the business of banking. These are regulatory measures for the purposes of maintaining the healthy economic atmosphere in the country. Such regulatory measures are provided for other companies also as well as industries manufacturing goods of importance. Otherwise these are purely private commercial activities. It deserves to be noted that it hardly makes any difference that such supervisory vigilance is kept by the Reserve Bank of India under a Statute or the Central Government. Even if it was with the Central Government in place of the Reserve Bank of India it would not have made any difference, therefore, the argument based on the decision of All India Bank Employees' Association (supra) does not advance the case of the respondent. It is only in case of malfunctioning of the company that occasion to exercise such powers arises to protect the interest of the depositors, shareholders or the company itself or to help the company to be out of the woods. In the times of normal functioning such occasions do not arise except for routine inspections etc. with a view to see that things are moved smoothly in keeping with fiscal policies in general.
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29. There are a number of such companies carrying on the profession of banking. There is nothing which can be said to be close to the governmental functions. It is an old profession in one form or the other carried on by individuals or by a group of them. Losses incurred in the business are theirs as well as the profits. Any business or commercial activity, may be banking, manufacturing units or related to any other kind of business generating resources, employment, production and resulting in circulation of money are no doubt, are such which do have impact on the economy of the country in general. But such activities cannot be classified one falling in the category of discharging duties, functions of public nature. Thus the case does not fall in the fifth category of cases enumerated in the case of Ajay Hasia (supra). Again we find that the activity which is carried on by the appellant is not one which may have been earlier carried on by the government and transferred to the appellant company. For the sake of argument even if it may be assumed that one or the other test as provided in the case of Ajay Hasia (supra) may be attracted that by itself would not be sufficient to hold that it is an agency of the State or a company carrying on the functions of public nature. In this connection, observations made in the case of Pradeep Kumar Biswas (supra) quoted earlier would also be relevant.
30. We may now consider the two decisions i.e. Andi Mukta (supra) and the U.P. State Co-operative Land Development Bank Ltd.(supra)upon which much reliance has been placed on behalf of the respondents to show that a writ would lie against the appellant company. So far the decision in the case of U.P. State Co-operative Land Development Bank Ltd.(supra) is concerned, it stands entirely on a different footing and we have elaborately discussed it earlier.
31. The other case which has been heavily relied upon is Andi Mukta (supra). It is no doubt held that a Mandamus can be issued to any person or authority performing public duty, owing positive obligation to the affected party. The writ petition was held to be maintainable since the teacher whose services were terminated by the institution was affiliated to the university and was Page 49 of 96 C/SCA/12852/2018 JUDGMENT governed by the Ordinances, casting certain obligations which it owed to that petitioner. But it is not the case here. Our attention has been drawn by the learned counsel for the appellant to paragraphs 12, 13 and 21 of the decision (Andi Mukta) to indicate that even according to this case no writ would lie against the private body except where it has some obligation to discharge which is statutory or of public character.
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 Page 50 of 96 C/SCA/12852/2018 JUDGMENT 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.
(Emphasis supplied)
168. Thus, if we apply the ratio of the decision of the Supreme Court in the case of Federal Bank (supra), then we have no difficulty in arriving at the conclusion that a writ petition would not be maintainable at the instance of the petitioners against a private bank in so far as the challenge to the legality and validity of the notice is concerned.
169. We may quote one more decision of the Supreme Court, showing considerable law on the issue with which we are dealing with, in the case of Binny Limited and another v. V.Sadasivan and others, (2005)6 SCC 657.
10. The Writ of Mandamus lies to secure the performance of a public or a statutory duty. The prerogative remedy of mandamus has long provided the normal means of enforcing the performance of public duties by public authorities. Originally, the writ of mandamus was merely an administrative order from the sovereign to subordinates. In England, in early times, it was made generally available through the Court of King's Bench, when the Central Government had little administrative machinery of its own. Early decisions show that there was free use of the writ for the enforcement of public duties of all kinds, for instance against inferior tribunals which refused to exercise their jurisdiction or against municipal corporation which did not duly hold elections, meetings, and so forth. In modern times, the mandamus is used to enforce statutory duties of public authorities. The courts always retained the discretion to withhold the remedy where it would not be in the interest of justice to grant it.
Page 51 of 96C/SCA/12852/2018 JUDGMENT It is also to be noticed that the statutory duty imposed on the public authorities may not be of discretionary character. A distinction had always been drawn between the public duties enforceable by mandamus that are statutory and duties arising merely from contract. Contractual duties are enforceable as matters of private law by ordinary contractual remedies such as damages, injunction, specific performance and declaration. In the Administrative Law (Ninth Edition) by Sir William Wade and Christopher Forsyth, (Oxford University Press) at page 621, the following opinion is expressed:
"A distinction which needs to be clarified is that between public duties enforceable by mandamus, which are usually statutory, and duties arising merely from contract. Contractual duties are enforceable as matters of private law by the ordinary contractual remedies, such as damages, injunction, specific performance and declaration. They are not enforceable by mandamus, which in the first place is confined to public duties and secondly is not granted where there are other adequate remedies. This difference is brought out by the relief granted in cases of ultra vires. If for example a minister or a licensing authority acts contrary to the principles of natural justice, certiorari and mandamus are standard remedies. But if a trade union disciplinary committee acts in the same way, these remedies are inapplicable: the rights of its members depend upon their contract of membership, and are to be protected by declaration and injunction, which accordingly are the remedies employed in such cases."
11. Judicial review is designed to prevent the cases of abuse of power and neglect of duty by public authorities. However, under our Constitution, Article 226 is couched in such a way that a writ of mandamus could be issued even against a private authority. However, such private authority must be discharging a public function and that the decision sought to be corrected or enforced must be in discharge of a public function. The role of the State expanded enormously and attempts have been made to create various agencies to perform the governmental Page 52 of 96 C/SCA/12852/2018 JUDGMENT functions. Several corporations and companies have also been formed by the government to run industries and to carry on trading activities. These have come to be known as Public Sector Undertakings. However, in the interpretation given to Article 12 of the Constitution, this Court took the view that many of these companies and corporations could come within the sweep of Article 12 of the Constitution. At the same time, there are private bodies also which may be discharging public functions. It is difficult to draw a line between the public functions and private functions when it is being discharged by a purely private authority. A body is performing a "public function" when it seeks to achieve some collective benefit for the public or a section of the public and is accepted by the public or that section of the public as having authority to do so. Bodies therefore exercise public functions when they intervene or participate in social or economic affairs in the public interest. In a book on Judicial Review of Administrative Action (Fifth Edn.) by de Smith, Woolf & Jowell in Chapter 3 para 0.24, it is stated thus:
"A body is performing a "public function" when it seeks to achieve some collective benefit for the public or a section of the public and is accepted by the public or that section of the public as having authority to do so. Bodies therefore exercise public functions when they intervene or participate in social or economic affairs in the public interest. This may happen in a wide variety of ways. For instance, a body is performing a public function when it provides "public goods" or other collective services, such as health care, education and personal social services, from funds raised by taxation. A body may perform public functions in the form of adjudicatory services (such as those of the criminal and civil courts and tribunal system). They also do so if they regulate commercial and professional activities to ensure compliance with proper standards. For all these purposes, a range of legal and administrative techniques may be deployed, including: rule- making, adjudication (and other forms of dispute resolution); inspection; and licensing.
Public functions need not be the exclusive domain Page 53 of 96 C/SCA/12852/2018 JUDGMENT of the state. Charities, self-regulatory organizations and other nominally private institutions (such as universities, the Stock Exchange, Lloyd's of London, churches) may in reality also perform some types of public function. As Sir John Donaldson M.R. urged, it is important for the courts to "recognise the realities of executive power" and not allow "their vision to be clouded by the subtlety and sometimes complexity of the way in which it can be exerted". Non- governmental bodies such as these are just as capable of abusing their powers as is government."
12. In Regina v. Panel on Take-overs and Merges, Ex parte Datafin Plc. And another (1987) 1 Queen's Bench Division 815, a question arose whether the Panel of Take- overs and Mergers had acted in concert with other parties in breach of the City Code on Take-overs and Mergers. The panel dismissed the complaint of the applicants. Though the Panel on Take-over and Mergers was purely a private body, the Court of Appeal held that the supervisory jurisdiction of the High Court was adaptable and could be extended to any body which performed or operated as an integral part of a system which performed public law duties, which was supported by public law sanctions and which was under an obligation to act judicially, but whose source of power was not simply the consent of those over whom it exercised that power; that although the panel purported to be part of a system of self- regulation and to derive its powers solely from the consent of those whom its decisions affected, it was in fact operating as an integral part of a governmental framework for the regulation of financial activity in the City of London, was supported by a periphery of statutory powers and penalties, and was under a duty in exercising what amounted to public powers to act judicially; that, therefore, the court had jurisdiction to review the panel's decision to dismiss the applicants' complaint; but that since, on the facts, there were no grounds for interfering with the panel's decision, the court would decline to intervene.
13. Lloyd L.J., agreeing with the opinion expressed by Sir John Donaldson M.R. held :
Page 54 of 96C/SCA/12852/2018 JUDGMENT "I do not agree that the source of the power is the sole test whether a body is subject to judicial review, nor do I so read Lord Diplock's speech. Of course the source of the power will often, perhaps usually, be decisive. If the source of power is a statute, or subordinate legislation under a statute, then clearly the body in question will be subject to judicial review. If at the end of the scale, the source of power is contractual, as in the case of private arbitration, then clearly the arbitrator is not subject to judicial review.
14. In that decision, they approved the observations made by Lord Diplock in Council of Civil Service Unions vs. Minister for the Civil Service (1985) A.C. 374, 409 wherein it was held:
"For a decision to be susceptible to judicial review the decision- maker must be empowered by public law (and not merely, as in arbitration, by agreement between private parties) to make decisions that, if validly made, will lead to administrative action or abstention from action by an authority endowed by law with executive powers which have one or other of the consequences mentioned in the preceding paragraph. The ultimate source of the decision- making power is nearly always nowadays a statute or subordinate legislation made under the statute; but in the absence of any statute regulating the subject matter of the decision the source of the decision-making power may still be the common law itself, i.e., that part of the common law that is given by lawyers the label of 'the prerogative.' Where this is the source of decision-making power, the power is confined to executive officers of central as distinct from local government and in constitutional practice is generally exercised by those holding ministerial rank"
15. It is also pertinent to refer to Sir John Donaldson M.R. in that Take-Over Panel case :
Page 55 of 96C/SCA/12852/2018 JUDGMENT "In all the reports it is possible to find enumerations of factors giving rise to the jurisdiction, essential or as being exclusive of other factors. Possibly the only essential elements are what can be described as a public element, which can take many different forms, and the exclusion from the jurisdiction of bodies whose sole source of power is a consensual submission to is jurisdiction."
16. The above guidelines and principles applied by English courts cannot be fully applied to Indian conditions when exercising jurisdiction under Article 226 or 32 of the Constitution. As already stated, the power of the High Courts under Article 226 is very wide and these powers have to be exercised by applying the constitutional provisions and judicial guidelines and violation, if any, of the fundamental rights guaranteed in Part III of the Constitution. In the matter of employment of workers by private bodies on the basis of contracts entered into between them, the courts had been reluctant to exercise the powers of judicial review and whenever the powers were exercised as against private employers, it was solely done based on public law element involved therein.
17. This view was expressly stated by this Court in various decisions and one of the earliest decisions is the Praga Tools Corporation v. Shri C.A. Imanual and Others (1969) 1 SCC 585 In this case, the appellant company was a company incorporated under the Indian Companies Act and at the material time the Union Government and the Government of Andhra Pradesh held 56 per cent and 32 per cent of its shares respectively. Respondent workmen filed a writ petition under Article 226 in the High Court of Andhra Pradesh challenging the validity of an agreement entered into between the employees and the company, seeking a writ of mandamus or an order or direction restraining the appellant from implementing the said agreement. The appellant raised objection as to the maintainability of the writ petition. The learned Single Judge dismissed the petition. The Division Bench held that the petition was not maintainable against the company. However, it granted a declaration in favour of three workmen, the validity of which was challenged Page 56 of 96 C/SCA/12852/2018 JUDGMENT before this Court. This Court held at pages 589-590 as under:
"....that the applicant for a mandamus should have a legal and specific right to enforce the performance of those dues. Therefore, the condition precedent for the issue of mandamus is that there is in one claiming it a legal right to the performance of a legal duty by one against whom it is sought. An order of mandamus is, in form, a command directed to a person, corporation or any inferior tribunal requiring him or them to do s particular thing therein specified which appertains to his or their office and is in the nature of a public duty. It is, however, not necessary that the person or the authority on whom the statutory duty is imposed need be a public official or an official body. A mandamus can issue, for instance, to an official of a society to compel him to carry out the terms of the statute under or by which the society is constituted or governed and also to companies or corporations to carry out duties placed on them by the statutes authorizing their undertakings. A mandamus would also lie against a company constituted by a statute for the purpose of fulfilling public responsibilities [Cf. Halsbury's Laws of England (3rd Ed.), Vol.II p 52 and onwards].
The company being a non-statutory body and one incorporated under the Companies Act there was neither a statutory nor a public duty imposed on it by a statute in respect of which enforcement could be sought by means of a mandamus, nor was there in its workmen any corresponding legal right for enforcement of any such statutory or public duty. The High Court, therefore, was right in holding that no writ petition for a mandamus or an order in the nature of mandamus could lie against the company."
18. It was also observed that when the High Court had held that the writ petition was not maintainable, no relief of a declaration as to invalidity of an impugned Page 57 of 96 C/SCA/12852/2018 JUDGMENT agreement between the company and its employees could be granted and that the High Court committed an error in granting such a declaration.
19. In VST Industries Limited vs. VST Industries Workers' Union & Anr. (2001) 1 SCC 298, the very same question came up for consideration. The appellant-company was engaged in the manufacture and sale of cigarettes. A petition was filed by the first respondent under Article 226 of the Constitution seeking a writ of mandamus to treat the members of the respondent Union, who were employees working in the canteen of the appellant's factory, as employees of the appellant and for grant of monetary and other consequential benefits. Speaking for the Bench, Rajendra Babu, J., (as he then was), held as follows :
"7. In de Smith, Woolf and Jowell's Judicial Review of Administrative Action, 5th Edn., it is noticed that not all the activities of the private bodies are subject to private law, e.g., the activities by private bodies may be governed by the standards of public when its decisions are subject to duties conferred by statute or when by virtue of the function it is performing or possible its dominant position in the market, it is under an implied duty to act in the public interest. By way of illustration, it is noticed that a private company selected to run a prison although motivated by commercial profit should be regarded, at least in relation to some of its activities, as subject to public law because of the nature of the function it is performing. This is because the prisoners, for whose custody and care it is responsible, are in the prison in consequence of an order of the court, and the purpose and nature of their detention is a matter of public concern and interest. After detailed discussion, the learned authors have summarized the position with the following propositions :
(1) The test of a whether a body is performing a public function, and is hence amenable to judicial review, may not depend upon the source of its Page 58 of 96 C/SCA/12852/2018 JUDGMENT power or whether the body is ostensibly a "public" or a "private" body.
(2) The principles of judicial review prima facie govern the activities of bodies performing public functions.
(3) However, not all decisions taken by bodies in the course of their public functions are the subject matter of judicial review. In the following two situations judicial review will not normally be appropriate even though the body may be performing a public function
(a) Where some other branch of the law more appropriately governs the dispute between the parties. In such a case, that branch of the law and its remedies should and normally will be applied; and
(b) Where there is a contract between the litigants. In such a case the express or implied terms of the agreement should normally govern the matter. This reflects the normal approach of English law, namely, that the terms of a contract will normally govern the transaction, or other relationship between the parties, rather than the general law. Thus, where a special method of resolving disputes (such as arbitration or resolution by private or domestic tribunals) has been agreed upon by the parties (expressly or by necessary implication), that regime, and not judicial review, will normally govern the dispute.
20. Applying the above principles, this Court held that the High Court rightly held that it had no jurisdiction.
21. Another decision on the same subject is General Manager, Kisan Sahkar Chini Mills Limited, Sultanpur, UP vs. Satrughan Nishad and Ors. (2003) 8 SCC 639. The appellant was a cooperative society and was engaged in Page 59 of 96 C/SCA/12852/2018 JUDGMENT the manufacture of sugar. The respondents were the workers of the appellant and they filed various writ petitions contending that they had to be treated as permanent workmen. The appellant challenged the maintainability of those writ petitions and applying the principles enunciated in VST Industries' case (supra), it was held by this Court that the High Court had no jurisdiction to entertain an application under Article 226 of the Constitution as the mill was engaged in the manufacture and sale of sugar which would not involve any public function.
22. In Federal Bank Limited vs. Sagar Thomas & Ors. (2003) 10 SCC 733, the respondent was working as a Branch Manager of the appellant Bank. He was suspended and there was a disciplinary enquiry wherein he was found guilty and dismissed from service. The respondent challenged his dismissal by filing a writ petition. The learned Single Judge held that the Federal Bank was performing a public duty and as such it fell within the definition of "other authorities" under Article 12 of the Constitution. The appellant bank preferred an appeal, but the same was dismissed and the decision of the Division Bench was challenged before this Court. This Court observed that a private company carrying on business as a scheduled bank cannot be termed as carrying on statutory or public duty and it was therefore held that any business or commercial activity, whether it may be banking, manufacturing units or related to any other kind of business generating resources, employment, production and resulting in circulation of money which do have an impact on the economy of the country in general, cannot be classified as one falling in the category of those discharging duties or functions of a public nature. It was held that that the jurisdiction of the High Court under Article 226 could not have been invoked in that case.
23. The counsel for the respondent in Civil Appeal No. 1976 of 1998 and for the appellant in the civil appeal arising out of SLP(Civil) No. 6016 of 2002 strongly contended that irrespective of the nature of the body, the writ petition under Article 226 is maintainable provided such body is discharging a public function or statutory Page 60 of 96 C/SCA/12852/2018 JUDGMENT function and that the decision itself has the flavour of public law element and they relied on the decision of this Court in Andi Mukta Sadguru Shree Muktajee Vandas Swami Suvarna Jayanti Mahotsav Smarak Trust & Ors. Vs. V.R. Rudani & Ors (1989) 2 SCC 691. In this case, the appellant was a Trust running a science college affiliated to the Gujarat University under Gujarat University Act, 1949. The teachers working in that college were paid in the pay scales recommended by the University Grants Commission and the college was an aided institution. There was some dispute between the University Teachers Association and the University regarding the fixation of their pay scales. Ultimately, the Chancellor passed an award and this award was accepted by the State Govt. as well as the University and the University directed to pay the teachers as per the award. The appellants refused to implement the award and the respondents filed a writ petition seeking a writ of mandamus and in the writ petition the appellants contended that the college managed by the Trust was not an "authority" coming within the purview of Article 12 of the Constitution and therefore the writ petition was not maintainable. This plea was rejected and this Court held that the writ of mandamus would lie against a private individual and the words "any person or authority" used in Article 226 are not to be confined only to statutory authorities and instrumentalities of the State and they may cover any other person or body performing public duty. The form of the body concerned is not very much relevant. What is relevant is the nature of the duty imposed on the body. The duty must be judged in the light of positive obligation owed by the person or authority to the affected party. No matter by what means the duty is imposed, if a positive obligation exists, mandamus cannot be denied.
29. Thus, it can be seen that a writ of mandamus or the remedy under Article 226 is pre-eminently a public law remedy and is not generally available as a remedy against private wrongs. It is used for enforcement of various rights of the public or to compel the public/statutory authorities to discharge their duties and to act within their bounds. It may be used to do justice when there is wrongful exercise of power or a refusal to perform duties. This writ is admirably equipped to serve as a judicial control over administrative actions. This writ Page 61 of 96 C/SCA/12852/2018 JUDGMENT could also be issued against any private body or person, specially in view of the words used in Article 226 of the Constitution. However, the scope of mandamus is limited to enforcement of public duty. The scope of mandamus is determined by the nature of the duty to be enforced, rather than the identity of the authority against whom it is sought. If the private body is discharging a public function and the denial of any right is in connection with the public duty imposed on such body, the public law remedy can be enforced. The duty cast on the public body may be either statutory or otherwise and the source of such power is immaterial, but, nevertheless, there must be the public law element in such action. Sometimes, it is difficult to distinguish between public law and private law remedies. According to Halsbury's Laws of England 3rd ed. Vol. 30, page-682, "a public authority is a body not necessarily a county council, municipal corporation or other local authority which has public statutory duties to perform and which perform the duties and carries out its transactions for the benefit of the public and not for private profit."
There cannot be any general definition of public authority or public action. The facts of each case decide the point.
30. A contract would not become statutory simply because it is for construction of a public utility and it has been awarded by a statutory body. But nevertheless it may be noticed that the Government or Government authorities at all levels is increasingly employing contractual techniques to achieve its regulatory aims. It cannot be said that the exercise of those powers are free from the zone of judicial review and that there would be no limits to the exercise of such powers, but in normal circumstances, judicial review principles cannot be used to enforce the contractual obligations. When that contractual power is being used for public purpose, it is certainly amenable to judicial review. The power must be used for lawful purposes and not unreasonably.
Page 62 of 96C/SCA/12852/2018 JUDGMENT
31. The decision of the employer in these two cases to terminate the services of their employees cannot be said to have any element of public policy. Their cases were purely governed by the contract of employment entered into between the employees and the employer. It is not appropriate to construe those contracts as opposed to the principles of public policy and thus void and illegal under Section 23 of the Contract Act. In contractual matters even in respect of public bodies, the principles of judicial review have got limited application. This was expressly stated by this Court in State of U.P. vs. Bridge & Roof Co. (1996) 6 SCC 22 and also in Kerala State Electricity Board vs. Kurien E.Kalathil (2000) 6 SCC 295. In the latter case, this Court reiterated that the interpretation and implementation of a clause in a contract cannot be the subject matter of a writ petition. Whether the contract envisages actual payment or not is a question of construction of contract. If a term of a contract is violated, ordinarily, the remedy is not a writ petition under Article 226.
32. Applying these principles, it can very well be said that a writ of mandamus can be issued against a private body which is not a State within the meaning of Article 12 of the Constitution and such body is amenable to the jurisdiction under Article 226 of the Constitution and the High Court under Article 226 of the Constitution can exercise judicial review of the action challenged by a party. But there must be a public law element and it cannot be exercised to enforce purely private contracts entered into between the parties.
170. Since we are on the issue of public functions, we may also quote with profit a portion of the decision of the Supreme Court in the case of Jatya Pal Singh (supra) as contained in paragraphs 48, 51 and 52, which read thus :
48. Dr. K.S.Chauhan had also relied on the Human Rights Act, 1998 (Meaning of Public Function) Bill which sets out the factors to be taken into account in determining whether a particular function is a public function for the purpose of sub-section (3)(b) of Section 6 of the aforesaid Act. Section (1) enumerates the following factors which Page 63 of 96 C/SCA/12852/2018 JUDGMENT may be taken into account in determining the question as to whether a function is a function of public nature.
1(a) the extent to which the state has assumed responsibility for the function in question;
(b) the role and responsibility of the state in relation to the subject-matter in question;
(c) the nature and extent of the public interest in the function in question;
(d) the nature and extent of any statutory power or duty in relation to the function in question;
(e) the extent to which the State, directly or indirectly, regulates, supervises or inspects the performance of the function in question;
(f) the extent to which the State makes payment for the function in question;
(g) whether the function involves or may involve the use of statutory coercive powers;
(h) the extent of the risk that improper performance of the function might violate an individual's convention right.
For the avoidance of doubt, for the purposes of Section 6(3)(b) of the Human Rights Act, 1998, as per the said Bill a function of a public nature includes a function which is required or enabled to be performed wholly or partially at public expense, irrespective of :
2. (a) the legal status of the person who performs the function, or
(b) whether the person performs the function by reason of a contractual or other agreement or arrangement.
51. This Court also quoted with approval the Commentary on Judicial Review of Administrative Action (Fifth Edn.) by de Smith, Woolf & Jowell in Chapter 3 para 0.24 therein it has been stated as follows :
Page 64 of 96C/SCA/12852/2018 JUDGMENT A body is performing a 'public function' when it seeks to achieve some collective benefit for the public or a section of the public and is accepted by the public or that section of the public as having authority to do so. Bodies therefore exercise public functions when they intervene or participate in social or economic affairs in the public interest.
Public functions need not be the exclusive domain of the state. Charities, self-regulatory organizations and other nominally private institutions (such as universities, the Stock Exchange, Lloyd's of London, churches) may in reality also perform some types of public function. As Sir John Donaldson M.R. urged, it is important for the courts to 'recognize the realities of executive power' and not allow 'their vision to be clouded by the subtlety and sometimes complexity of the way in which it can be exerted'. Non- governmental bodies such as these are just as capable of abusing their powers as is Government.
52. These observations make it abundantly clear that in order for it to be held that the body is performing a public function, the appellant would have to prove that the body seeks to achieve some collective benefit for the public or a section of public and accepted by the public as having authority to do so.
171. In Shri Anadi Mukta Sadguru Shree Muktajee Vandasjiswami Suvarna Jayanti Mohtsav Smarak Trust v. V.R.Rudani, AIR 1989 SC 1607, on which strong reliance has been placed by Mr.Shelat in support of his submission regarding amenability, the Supreme Court dealt with the case of a science college at Ahmedabad, which was being which was being run by a Trust and has temporary affiliation to the Gujarat University under the Gujarat University Act, 1949, which, of course, later received permanent affiliation as amended by Gujarat Act VI of 1973. The University teachers and those employed in the affiliated colleges were paid in the pay scale recommended by the University Grants Commission. At one stage there was some dispute Page 65 of 96 C/SCA/12852/2018 JUDGMENT between the University area teachers Association and the University and the implementation of certain pay scales. That dispute by agreement of parties was referred to the Chancellor of the University for decision. The Chancellor gave his award holding that the revised pay scales should be applicable to all irrespective of the employment under the University and affiliated college. The State Government accepted the award of the Chancellor and issued directions to all affiliated colleges to pay their teachers in terms thereof. The trustees challenged the Government's directive and approached the University to terminate the services of the teachers who were entitled to the revised scale of pay on the ground that they were surplus. The Vice-Chancellor, however, refused the request of the trustees. The trustees then decided to close down the college and surrendered the affiliation of the college to the University. Teachers moved the High Court. The trustees resisted the prayer on the grounds, inter alia: (1) the Trust is not a statutory body and is not subject to the writ jurisdiction of the High Court; (2) the resolution of the University directing payment to teachers in the revised pay scales was not binding on the trust; (3) the University had no power to burden the trust with additional financial liability by retrospectively revising the pay scales; (4) the claim for gratuity by retrenched teachers was untenable; and (5) Ordinance 120E prescribing closure compensation was ultra vires of the powers of the Syndicate.
172. The High Court rejected the above submissions and accepted the writ petitions. The trustees moved the Supreme Court. The Supreme Court has in the said judgment considered the question of maintainability of the writ petition under Article 226 of the Constitution in these words (AIR 1989 SC 1607 at pp.1610-1613) :
"The essence of the attack on the maintainability of the writ petition under Art. 226 may now be examined. It is argued that the management of the college being a trust registered- under the Public Trusts Act is not amenable to the writ jurisdiction of the High Court. The contention in other words is that the trust is a private institution Page 66 of 96 C/SCA/12852/2018 JUDGMENT against which no writ of mandamus can be issued. In support of the contention, the counsel relied upon two decisions of this Court: (a) Executive Committee of Vaish Degree College, Shamli v. Lakshmi Narain, (1976) 2 SCR 1006 : AIR 1976 SC 888 and (b) Deepak Kumar Biswas v. Director of Public Instruction. In the first of the two cases, the respondent institution was a Degree College managed by a registered co-operative society. A suit was filed against the college by the dismissed principal for reinstatement. It was contended that the Executive Committee of the college which was registered under the Co-operative Societies Act and Affiliated to the Agra University (and subsequently to Meerut University) was a statutory body. The importance of this contention lies in the fact that in such a case, reinstatement could be ordered if the dismissal is in violation of statutory obligation. But this Court refused to accept the contention. It was observed that the management of the college was not a statutory body since not created by or under a statute. It was emphasised that an institution which adopts certain statutory provisions will not become a statutory body and the dismissed employee cannot enforce a contract of personal service against a non- statutory body.
The decision in Vaish Degree College was followed in Deepak Kumar Biswas case. There again a dismissed Lecturer of a private college was seeking reinstatement in service. The Court refuse to grant the relief although it was found that the dismissal was wrongful. This Court instead granted substantial monetary benefits to the lecturer. This appears to be the preponderant judicial opinion because of the common law principle that a service Contract cannot be specifically enforced.
But here the facts are quite different and, therefore, we need not go thus far. There is no plea for specific performance of contractual service. The respondents are not seeking a declaration that they be continued in service. They are not asking for mandamus to put them back into the college. They are claiming only the terminal benefits and arrears of salary payable to them. The question is whether the trust can be compelled to pay by a writ of Mandamus?
Page 67 of 96C/SCA/12852/2018 JUDGMENT If the rights are purely of a private character no mandamus can issue. If the management of the college is purely a private body with no public duty mandamus will not lie. These are two exceptions to Mandamus. But once these are absent and when the party has no other equally convenient remedy, mandamus cannot be denied. It has to be appreciated that the appellant-trust was managing the affiliated college to which public money is paid as Government aid. Public money paid as Government aid plays a major role in the control, maintenance and working of educational institutions. The aided institutions like Government institutions discharge public function by way of imparting education to students. They are subject to the rules and regulations of the affiliating University. Their activities are closely supervised by the University authorities. Employment in such institutions, therefore, is not devoid of any public character (See The "Evolving Indian Administrative Law by M.P. Jain (1983) p 266). So are the service conditions of the academic staff. When the University takes a decision regarding their pay scales, it will be binding on the management. The service conditions of the academic staff are, therefore, not purely of a private character. It has super-added protection by University decisions creating a legal right-duty relationship between the staff and the management. When there is existence of this relationship, mandamus cannot be refused to the aggrieved party.
The law relating to mandamus has made the most spectacular advance. It may be recalled that the remedy by prerogative writs in England started with very limited scope and suffered from many procedural disadvantages. To overcome the difficulties, Lord Gardiner (the Lord Chancellor) in pursuance of Section 3(l)(e) of the Law Commission Act, 1965, requested the law Commission to review the existing remedies for the judicial control of administrative acts and commissions with a view to evolving a simpler and more effective procedure. The Law Commission made their report in March, 1976 (Law Com No. 73) it was implemented by Rules of Court (Order
53) in 1977 and given statutory force in 198! by Section 31 of the Supreme Court Act, 1981. It combined all the Page 68 of 96 C/SCA/12852/2018 JUDGMENT former remedies into one proceeding called judicial review. Lord Denning explains the scope of this "Judicial review":
"At one stroke the courts could grant whatever relief was appropriate. Not only certiorari and mandamus, but also declaration and injunction. Even damages. The procedure was much more simple and expeditious. Just a summons instead of a writ. No formal pleadings. The evidence was given by affidavit. As a rule no cross-examination, no discovery, and so forth. But there were important safeguards. In particular, in order to qualify, the applicant had to get the leave of a judge.
The statute is phrased in flexible terms. It gives scope for development. It uses the words "having regard to". Those words are very indefinite. The result is that the courts are not bound hand and foot by the previous law. They are to 'have regard to' it. So the previous law as to who are - and who are not
- public authorities, is not absolutely binding. Nor is the previous law as to this matters in respect of which relief may be granted. This means that the judges can develop the public law as they think best. That they have done and are doing." (see - The Closing Chapter by Rt. Hon. Lord Denning p.
122) There, however, the prerogative writ of mandamus confined only to public authorities to compel performance of public duty. The 'public authority' for them means everybody which is created by statute - and whose powers and duties are defined by statute. So Government departments, local authorities, police authorities, and statutory undertakings and corporations, are all 'public authorities'. But there is no such limitation for our High Courts to issue the writ 'in the nature of mandamus'. Article 226 confers wide powers on the High Courts to issue writs in the nature of prerogative writs. This is a striking departure from the English law. Under Article 226, writs can be Page 69 of 96 C/SCA/12852/2018 JUDGMENT issued to 'any person or authority'. It can be issued 'for the enforcement of any of the fundamental rights and for any other purpose."
Article 226 reads:
"226. Power of High Courts to issue certain writs.-- (1) Notwithstanding anything in Art. 32, every High Court shall have power throughout the territories in relation to which it exercises jurisdiction, to issue to any person or authority including in appropriate cases, any Government, within those territories directions, orders or writs, including (writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari) or any of them for the enforcement of any of the rights conferred by Part III and for any other purpose.
xxxx xxxx xxxx xxxx xxxx The scope of this article has been explained by Subba Rao, J., in Dwarkanath v. Income-tax Officer, AIR 1966 SC 81 at pp.84-85, This article is couched in comprehensive phraseology and it ex facie confers a wide power on the High Courts to reach injustice wherever it is found. The Constitution designedly used a wide language in describing the nature of the power, the purpose for which and the person or authority against whom it can be exercised. It can issue writs in the nature of prerogative writs as understood in England; but the use of the expression "nature", for the said expression does not equate the writs that can be issued in India with those in England, but only draws an analogy from them. That apart, High Courts can also issue directions, orders or writs other than the prerogative writs. It enables the High Courts to mould the reliefs to meet the peculiar and complicated requirements of this country. Any attempt to equate the scope of the power of the High Court under Art. 226 of the Constitution with that of the English Courts to issue prerogative writs is to introduce the unnecessary procedural restrictions grown over the years in a comparatively small country like England with a unitary Page 70 of 96 C/SCA/12852/2018 JUDGMENT form of Government into a vast country like India functioning under a federal structure. Such a construction defeats the purpose of the article itself."
The term "authority" used in Art. 226, in the context, must receive a liberal meaning unlike the term in Art. 12. Article 12 is relevant only for the purpose of enforcement of fundamental rights under Art. 32. Article 226 confers power on the High Courts to issue writs for enforcement of the fundamental rights as well as non-fundamental rights. The words "Any person or authority" used in Art. 226 are, therefore, not to be confined only to statutory authorities and instrumentalities of the State. They may cover any other person or body performing public duty. The form of the body concerned is not very much relevant. What is relevant is the nature of the duty imposed on the body. The duty must be judged in the light of positive obligation owed by the person or authority to the affected_ party. No matter by what means the duty is imposed. If a positive obligation exists mandamus cannot be denied.
In Praga Tools Corporation v. C.V. Imanual, , this Court said that a mandamus can issue against a person or body to carry but the duties placed on them by the Statutes even though they are not public officials or statutory body. It was observed (at p. 778 of 1969-3 SCR): (at pp 1309-10 of AIR):
"It is, however, not necessary that the person or the authority on whom the statutory duty is imposed need be a public officials or an official body. A mandamus can issue, for instance, to an official of a society to compel him to carry out the terms of the statute under or by which the society is constituted or governed and also, to companies or corporations to carry out duties placed on them by the statutes authorising their undertakings. A mandamus would also lie against a company constituted by a statute for the purpose of fulfilling public responsibilities. (See Halsbury's Law of England (3rd Ed. Vol. II p. 52 and onwards)."Page 71 of 96
C/SCA/12852/2018 JUDGMENT Here again we may point out that mandamus cannot be denied on the ground that the duty to be enforced is not imposed by the statute. Commenting on the development of this law, Professor De Smith states: "To be enforceable by mandamus a public duty does not necessarily have to be one imposed by statute. It may be sufficient for the duty to have been imposed by charter, common law, custom or even contract." (Judicial Review of Administrative Act 4th Ed. p 540). We share this view.
The judicial control over the fast expanding maze of bodies affecting the rights of the people should not be put into watertight compartment. It should remain flexible to meet the requirements of variable circumstances. Mandamus is a very wide remedy which must be easily available lo reach injustice whenever it is found". Technicalities should not come in the way of granting that relief under Art. 226. We, therefore, reject the contention urged for the appellants on the maintainability of the writ petition.
173. The ratio discernible from Shri Anadi Mukta Sadguru (supra) is that, the form of the body concerned is not very much relevant. What is relevant is the nature of duty imposed on the body. A writ of mandamus can be issued against a person or a body to carry out the duties placed on them by the statute, even though they are not public officials or statutory bodies.
174. In Praga Tools Corporation v. C.V. Immaneul, AIR 1969 SC 1306, the Supreme Court observed:
"Article 226 provides that every High Court shall have power to issue to any person or authority orders and writ, including writs in the nature of habeas corpus, mandamus, etc., or any of them for the enforcement of any of the rights conferred by Part-Ill of the Constitution and for any other purpose. But, it is well understood that a mandamus lies to secure the performance of a public or statutory duty in the performance of which the one who applies for it has a sufficient legal interest.
Page 72 of 96C/SCA/12852/2018 JUDGMENT Therefore, the condition precedent for the issue of mandamus is that there is. one claiming it a legal right to the performance of a legal duty by one against whom it is sought. An order of mandamus, is, in form, a command directed to a person, corporation or inferior Tribunal requiring him or them to do a particular thing therein specified which appertains to his or their office and is in the nature of a public duty. It is, however, not necessary that the person on the authority on whom the statutory duty is imposed need be a public official or an official body.
It is therefore, clear that a writ of mandamus is an extraordinary remedy. It is in form a command directed to a person, corporation or an inferior Tribunal requiring him or them to do a particular thing therein specified which appertains to his or their office and is in the nature of a public duty. So long as the duty that is sought to be performed is in the nature of a public duty, it is not necessary that the person or the authority on which the duty is imposed should be a public official or an official body. It is further necessary that the person claiming a 'writ of mandamus must have a legal right to the performance of a legal duty by the one against whom the writ is sought.
175. What is discernible from an exhaustive review of the case-law, considered and discussed above, may be summed up thus:
1. For issuing writ against a legal entity, it would have to be an instrumentality or agency of a State or should have been entrusted with such functions as are Governmental or closely associated therewith by being of public importance or being fundamental to the life of the people and hence Governmental.
2. A writ petition under Article 226 of the Constitution of India may be maintainable against (i) the State Government; (ii) Authority; (iii) a statutory body; (iv) an instrumentality or agency of the State; (v) a company which is financed and owned by the State; (vi) a private body run substantially on State funding; (vii) a private Page 73 of 96 C/SCA/12852/2018 JUDGMENT body discharging public duty or positive obligation of public nature; and (viii) a person or a body under liability to discharge any function under any Statute, to compel it to perform such a statutory function.
3. Although a private banking company like the Standard Chartered Bank with which we are concerned is duty bound to follow and abide by the guidelines provided by the Reserve Bank of India for smooth conduct of its affairs in carrying on its business, yet those are of regulatory measures to keep a check and provide guideline and not a participatory dominance or control over the affairs of the company.
4. A private company carrying on banking business as a Scheduled bank cannot be termed as a company carrying on any public function or public duty.
5. Normally, mandamus is issued to a public body or authority to compel it to perform some public duty cast upon it by some statute or statutory rule. In exceptional cases a writ of mandamus or a writ in the nature of mandamus may issue to a private body, but only where a public duty is cast upon such private body by a statute or statutory rule and only to compel such body to perform its public duty.
6. Merely because a statue or a rule having the force of a statute requires a company or some other body to do a particular thing, it does not possess the attribute of a statutory body.
7. If a private body is discharging a public function and the denial of any rights is in connection with the public duty imposed on such body, the public law remedy can be enforced. The duty cast on the public body may be either statutory or otherwise and the source of such power is immaterial but, nevertheless, there must be the public law element in such action.
8. According to Halsbury's Laws of England, 3rd Ed. Vol.30, p.682, a public authority is a body not necessarily a county council, municipal corporation or other local authority which has public statutory duties to perform and which perform the duties and carries out its transactions for the benefit of the public and not for private profit. There cannot be any general definition of public authority or public action. The facts of each case decide the point.
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176. We are again posing a question for our consideration. The answer to the same should put an end to the matter.
177. The Master Circular relating to the willful defaulters has been issued by the Reserve Bank of India in exercise of its powers under the Banking Regulation Act, 1949, and the Reserve Bank of India Act, 1934, very much binding to the Standard Chartered Bank, therefore, while acting under the Master Circular for the purpose of declaring a particular borrower as a willful defaulter, does the bank discharge a public duty.
178. To put it in other words, if a private bank has failed to perform its duty in the sense that it has gone beyond the scope of the regulations of the Master Circular, or in performance of the same, has violated any of the fundamental rights or any other legal rights of the borrower against whom the action is proposed, then whether such a borrower can legitimately maintain a writ-application before this Court under Article 226 of the Constitution of India.
179. A body, public or private, should not be categorized as amenable or not amenable to writ jurisdiction. The most important and vital consideration should be the function test as regards the maintainability of a writ application. If a public duty or public function is involved, any body, public or private, concerned or connection with that duty or function, and limited to that, would be subject to judicial scrutiny under the extraordinary writ jurisdiction of Article 226 of the Constitution of India.
180. In the case of LIC of India v. Escorts Ltd., AIR 1986 SC 1370, it was contended before the Supreme Court that the Life Insurance Corporation was an instrumentality of the State, and was debarred by Article 14 from acting arbitrarily. It was also contended that it was obligatory upon the Corporation to disclose the Page 75 of 96 C/SCA/12852/2018 JUDGMENT reasons for its action complained of, namely, its requisition to call an extra-ordinary general meeting of the company for the purpose of moving a Resolution to remove some Directors and appoint others in their place. Such argument was opposed by the State, contending that the actions of the State or an instrumentality of the State, which do not properly belong to the field of public law but belong to the field of private law, were not subject to judicial review. Dealing with the said contentions, the Supreme Court observed :-
"While we do find considerable force in the contention of the learned Attorney-General it may not be necessary for us to enter into any lengthy discussion of the topic, as we shall presently see. We also desire to warn ourselves against readily referring to English cases on questions of Constitutional law' Administrative Law and Public Law as the law in India in these branches has forced ahead of the law in England, guided as we are by our Constitution and uninhibited as we are by the technical rules which have hampered the development of the English law. While we do not for a moment doubt that every action of the State or an instrumentality of the State must be informed by reason and that, in appropriate cases actions uninformed by reason may be questioned as arbitrary in proceedings under Art.226 or Art.32 of the Constitution, we do not construe Art.14 as a charter for judicial review of State actions and to call upon the State to account for its actions in its manifold activities by stating reason; for such actions.
For example, if the action of the State is political or sovereign in character, the Court will keep away from it 'the Court will not debate academic matters or concern itself with the intricacies of trade and commerce. If the action of the State is related to contractual obligation or obligations arising out of the contract, the Court may not ordinarily examine it unless the action has some public law character attached to it. Broadly speaking, the Court will examine actions of State if they pertain to the public law domain and refrain from examining them if they pertain to the private law field. The difficulty will lie in demarcating the frontier between the public law domain and the private law field. It is impossible to draw the line with precision and we do not want to attempt it. The Page 76 of 96 C/SCA/12852/2018 JUDGMENT question must be decided in each case with reference to the particular action, the activity in which the State or the instrumentality of the State is engaged when performing the action, the public law or private law character of then action and a host of other relevant circumstances. When the State or an instrumentality of the State ventures into the corporate world and purchases the shares of a company, it assumes to itself the ordinary role of a share holder, and dons the robes of a share-holder, with all the rights available to such a share-holder there is no reason why the State as a share- holder should be expected to state its reasons when it seeks to change the management, by a resolution of the Company, like any other share-holder.."
Distinction between `public law' and `private law' :
Difficult as this distinction is and incapable of precise demarcation, it is yet necessary to keep the broad distinction in mind. Lord Denning in his book "The Closing Chapter" has this to say on the subject:
"The first thing to notice is that public law is confined to `public authorities'. What are 'public authorities'? There is only one avenue of Approach. It is by asking, in the words of Section 31(2)(b) of the Supreme Court Act 1981 :
What is the 'nature of the persons and bodies against whom relief may be granted by such orders', that is, by mandamus, prohibition or certiorari?
These are divided into two main categories :
First, the persons or bodies who have legal authority to determine questions affecting the common law or statutory rights or obligations of other persons as individuals. That is the formula stated by Lord Justice Atkin in R. v. Electricity Commissioners, ex parte London Electricity Joint Committee Co., (1920) Ltd, (1924)1 KB 171 / 205 as broadened by Lord Diplock in O'Reilly v. Mackman (1982) 3, WLR 1096/ 1104).
Second, the persons or bodies who are entrusted by Parliament with functions, powers and duties which involve the making of decisions of a public nature....To which I would add the words of Lord Goddard, C.J. in R. v.
Page 77 of 96C/SCA/12852/2018 JUDGMENT National Joint Council for Dental Technicians, ex parte Neate (1953) 1 QB 704/707):
"The bodies to which in modern times the remedies of these prerogative writs have been applied have all been statutory bodies on whom Parliament has conferred statutory powers and duties which, when exercised, may lead to the detriment of subjects who may have to submit to their jurisdiction".
But those categories are not exhaustive. The courts can extend them to any other person or body of a public nature exercising public duties which it is desirable to control by the remedy of judicial review.
There are many cases which give guidance, but I will just give some illustrations.
Every body which is created by statute and whose powers and duties are defined by statute is a 'public authority'. So Government departments, local authorities, police authorities, and statutory undertakings and corporations, are all `public authorities'. So are members of a statutory tribunal or inquiry, and the board of visitors of a prison. The Criminal Injuries Compensation Board is a public authority. So also, I suggest, is a university incorporated by Royal charter; and the managers of a State School. So is the Boundary Commission: and the Committee of Lloyd's.
But a limited liability company incorporated under the Companies Acts is not a 'public authority'; (see Tozer v. National Greyhound Racing Club Ltd. (1983) Times, 16 May). Nor is an unincorporated association like the Jockey Club... ". (see pp. 122, 123, 124)
38. Sir Harry Woolf, a Lord Justice of Court of Appeal, points out the distinction in the following words :-
"I regard public law as being the system which enforces the proper performance by public bodies of the duties which they owe to the public. I regard private law as being the system which protects the private rights of private individuals or the private rights of public bodies. The critical distinction arises out of the fact that it is the Page 78 of 96 C/SCA/12852/2018 JUDGMENT public as a whole, or in the case of local government the public in the locality, who are the beneficiaries of what is protected by public law and it is the individuals or bodies entitled to the rights who are the beneficiaries of the protection provided by private law ". (see page 221 of his Article "Public Law Private Law : Why the Divide? A personal View (published in "Public Law" Summer (1986)").
The learned Law Lord stated further in the same Article, at page 223 :
"While public law deals only with public bodies, this does not mean that the activities of public bodies are never governed by private law. Like public figures, at least in theory, public bodies are entitled to have a private life. There have been suggestions that in the commercial field public bodies should adopt different and higher ethical standards than private individuals, but this is not yet required as a matter of law and in relation to purely commercial transactions the same law is applicable, whether or not a public duty is involved. Prima facie, the same is true in relation to employment. The servant employed by a public body ordinarily has the same private rights as any other servant ".
The position may, however, be different pointed out the learned Law Lord if such relationship is circumscribed by a statutory provision.
39. In this context, it would be appropriate to refer to two important English decisions, where a public duty was implied even in the absence of a statutory provisions. They are R. v. Criminal Injuries Compensation Board, ex parte Lain (1967) 2 All ER 770, and R. v. Panel on take- overs (1987) 1 All ER 564. In Criminal Injuries Compensation Board, the relevant facts are the following: In the year 1964 the Government of Great Britian announced a Scheme in both Houses of Parliament providing for compensation to victims of violence and persons injured while assisting the police. It was a non- statutory scheme under which compensation was to be paid ex gratia. The scheme was to be administered by a Board, who were to be provided with money through a grant-in-aid, out of which payment would be made when the Board was satisfied that the compensation was Page 79 of 96 C/SCA/12852/2018 JUDGMENT justified. The widow of a Police Constable who was shot in the face by a suspect whom he was about to question, and who subsequently shot himself, applied to the Board for compensation. The Board awarded compensation, but made certain deductions, which was questioned by way of certiorari. The first question before the Court was "whether the Board are a body of persons amenable to the supervisory jurisdiction of this Court?". For the Board reliance was placed upon the well-known words of Atkin, L.J., in' R.v. Electricity Commissioners (1924) 1 KB 171, at p. 205 to the effect that the body of persons to be amenable to writ jurisdiction must have the legal authority to determine questions affecting the rights of subjects and who are under a duty to act judicially. The Court held that the said words of Atkin. L. J., were not supposed to be exhaustive of the situation where a certiorari may issue, and pointed out that the Board, though not set up under a statute, is set up by the executive Government, i.e., under the prerogative, and that its acts are no less lawful on that account. The Court observed :
"Indeed, the writ of certiorari has been issued not only to courts set up by statutes but also to courts whose authority was derived, inter alia, from the prerogative. Once the jurisdiction is extended, as it clearly has been, to tribunals as opposed to courts, there is no reason why the remedy by way of certiorari cannot be invoked to a body of persons set up under the prerogative. Moreover, the Board, though set up under the prerogative and not by statute, had in fact the recognition of Parliament in debate and Parliament provided the money to satisfy the Board's awards....".
It was further observed:
"We have, as it seems to me, reached the position when the ambit of certiorari can be said to cover every case in which a body of persons, of a public as opposed to a purely private or domestic character, has to determine matters affecting subjects provided always that it has a duty to act judicially. Looked at in this way, the Board in my judgment comes fairly and squarely within the jurisdiction of this Court. The Board are, as counsel for the Board said, "a servant of the Crown, charged by the Crown, by executive instructions, with the duty of distributing the bounty of the Crown". The Board are Page 80 of 96 C/SCA/12852/2018 JUDGMENT clearly, therefore, performing public duties. Moreover, the Board are quite clearly under a duty to act judicially".
The same idea was put forward by Diplock, L.J., in his separate opinion, where he said :
"If new tribunals are established by acts of Government, the supervisory jurisdiction of the High Court extends to them if they possess the essential characteristics on which the subjection of inferior tribunals to the supervisory control of the High Court is based...". Ashworth, J., justified the issue of certiorari in that case on the following basis:
"They (Board) were set up by the executive after the proposal to set them up had been debated in both Houses of Parliament, and the money needed to satisfy their awards is drawn from sums provided by Parliament. It can therefore be said that their existence and their functions have at least been recognized by Parliament, which to my mind has a twofold consequence : in the first place it negatives any notion that the Board are a private tribunal, and secondly it confers on the Board what I may call a public or official character. The number of applications for compensation and the amounts awarded by the Board alike show how greatly the general public are affected by the functioning of the Board ....".
40. This decision has since been followed and applied in several English decisions. It would suffice to refer to R. v. Panel on Takeovers and Mergers, Ex Parte Datafin (1987) 1 All ER 564. The Panel on Take-overs and Mergers was a self-regulating unincorporated association which devised and operated the City Code on Take-overs and Mergers prescribing a Code of Conduct to be observed in the take- overs of listed public companies. The panel had no direct statutory, prerogative or common law powers, nor were its powers based solely on consensus; its acts were supported and sustained by certain statutory powers and penalties introduced after the inception of the Panel. A decision of the panel was sought to be questioned by way of certiorari. One of the objections of the respondents was that the supervisory jurisdiction of the Court was confined to bodies whose power was derived solely from legislation or the exercise of the prerogative, and that the power of judicial review did not extend to a Page 81 of 96 C/SCA/12852/2018 JUDGMENT body such as the Panel on Takeovers. Overruling this objection, it was held that in determining whether the decisions of a particular body were subject to judicial review, the Court was not confined to considering the source of that body's powers and duties, but could also look to their nature. Accordingly, if the duty imposed on a body, whether expressly or by implication, was a public duty and the body was exercising public law functions, the Court had jurisdiction to entertain an application for judicial review of that body's decisions. It was held that, having regard to the wide-ranging nature and importance of the matters covered by the City Code on Take-overs and Mergers and to the public consequences of noncompliance with the Code, the Panel on Takeovers and Mergers was performing a public duty when prescribing and administering the Code and its rules and was subject to public law remedies. Accordingly, it was held that an application for judicial review would lie in an appropriate case. The approach to be adopted in such cases, it was stated by Sir John Donaldson, M.R., is"to recognize the realities of executive power".This is what the learned Master of Rolls stated :-
"In fact, given its novelty, the panel fits surprisingly well into the format which this court had in mind in R. v. Criminal Injuries Compensation Board (1967-2 QB 867). It is without doubt performing a public duty and an important one. This is clear from the expressed willingness of the Secretary of State for Trade and Industry to limit legislation in the field of take-overs and mergers and to use the panel as the centerpiece of his regulation of that market. The rights of citizens are indirectly affected by its decisions, some, but by no means all of whom, may in a technical sense be said to have assented to this situation, e.g., the members of the Stock Exchange. At least in its determination of whether there has been a breach of the Code, it has a duty to act judicially and it asserts that its raison d'etre is to do equity between one shareholder and another. Its source of power is only partly based on moral persuarion and the assent of institutions and their members, the bottom line being the statutory powers exercised by the Department of Trade and Industries and the Bank of England. In this context I should be very disappointed if the courts could not recognize the realities of executive power and allowed their vision to be clouded by the subtlety and Page 82 of 96 C/SCA/12852/2018 JUDGMENT sometimes complexity of the way in which it can be exerted...".
This rule was reiterated in yet another decision of the Court of Appeal in R. v. Panel on Take-overs and Mergers, ex parte Guinness, (1989) 1 All ER 509. This was indeed the approach indicated by Mathew, J. in Sukhdev v. Bhagatram, AIR 1975 SC 1331, when the learned Judge spoke of "the governing power, wherever located" being subjected to "fundamental constitutional limitations". The learned Judge felt that "the need to subject the power centres to the control of the Constitution requires an expansion of the concept of State action". (see para 93 at p. 1352).
181. Applying the above test, the Bank herein cannot be called a public body. It has no duty towards the public. It's duty is towards its account holders, which may include the borrowers having availed of the loan facility. It has no power to take any action, or pass any order affecting the rights of the members of the public. The binding nature of its orders and actions is confined to its account holders and borrowers and to its employees. Its functions are also not akin to Governmental functions.
182. We may also quote with profit a Full Bench decision of the Bombay High Court in the case of Shamrao Vithal Co-operative Bank Ltd. v. Padubidri Pattabhiram Bhat, AIR 1993 Bombay 91. The issue before the Full Bench of the Bombay High Court was whether the appellant-Bank was "State" within the meaning of Article 12 of the Constitution of India, and whether the writ-petition was maintainable against the appellants. In view of conflict of two decisions of the High Court, the matter was referred to a Larger Bench for determination. It was submitted that a Co-operative Bank, performed an important public function and that itself was sufficient for coming to the conclusion that it was a "State" under Article 12. It was also submitted that in a welfare State, the definition of "Governmental functions" had to be widened to include within its scope of functions, which were of public importance. Hence, any organization which performs a public function must be considered as a "State" under Article 12. The Full Bench took the view that it was too broad a proposition and sounded a note of caution considering the decision of the Supreme Court in the Page 83 of 96 C/SCA/12852/2018 JUDGMENT case of Ajay Hasai (supra). The Court took the view that every organization which carried out a function, which was of public importance, did not necessarily become "State" under Article 12. Conferment of "Statehood" depended upon various other factors also, such as the nexus of such organizations with the State, the extent of State control etc. The following observations of the Full Bench are worth taking note of :-
There may be many functions of public importance which can be performed by private organisation also. We have a large number of organisations doing important social work vital to the community. There are, for example, organisations which look after, educate and train handicapped persons or the blind, provide them with jobs and rehabilitate them. There are private charitable organisations which may provide free or subsidies housing to the poor or free medical aid. They may supply text-books to poor students, freeships and scholarships. There may be private organisation engaged in transport of goods and men. They perform functions which are, undoubtedly of public importance; and they subserve a public need. But this does not necessarily make such organisations "State" under Art. 12.Banking is undoubtedly a function of public importance. In fact, the nationalised banks do carry out these functions under the control of the State. But that does not mean that banks which are not so controlled, or banks which are set up by private organisations or co-operative societies become" State" under Article 12. In a welfare State, many activities which are often carried on by private organisations are undertaken by the State. In such cases the Supreme Court has said that we must look at the overall position of the organisation in the light of the other tests also, especially when the function of the organisation is not such as can be carried on only by the State or is not connected with governmental functions."
183. What is complained before us is the procedural arbitrariness on the part of the bank. We have examined the constitutional validity of the Master Circular issued by the Reserve Bank of India at the instance of the petitioners of Special Civil Application No.10120 of 2014, but it is difficult for us to also look into the proposed Page 84 of 96 C/SCA/12852/2018 JUDGMENT action on the part of the Standard Chartered Bank on the premise that the show-cause notice which has been issued is lacking in material particulars.
184. Such being the position, we hold that the Standard Chartered Bank being a private bank is not amenable to the writ jurisdiction of this Court under Article 226 of the Constitution of India.
185. If the petitioners are aggrieved in any manner with the mode and method of inquiry pursuant to the show- cause notice issued upon them, then it would be open for them to challenge the same in accordance with law before the appropriate authority."
36. With all odds against the writ applicant, I am still persuaded to take the view that I should not throw away this writ application on the ground that the same is not maintainable in law. It is evident from the materials on record that it all started with the statutory inspection of the Bank by the officials of the RBI under section 35 of the Banking Regulation Act, 1949. According to the RBI, the writ applicant managed to avail loan facility from the Mehsana Urban Cooperative Bank Ltd. (for short "the MUCBL) in the companies in which he himself and his relatives are interested. The allegations of the RBI are that this was done clandestinely with a view to overcome the provisions of the statutory directions issued by the RBI prohibiting loans and advances in favour of the directors and their relatives. It is also the case of the RBI that the statutory inspection of the MUCBL revealed several irregularities and violation of the provisions of the Banking Regulation Act as well as the directions issued by the RBI time to time. It is also alleged by the RBI that the MUCBL had sanctioned loans and advances to eight firms/concerns/companies, in which, the directors on the board of the Bank were interested and that includes the writ Page 85 of 96 C/SCA/12852/2018 JUDGMENT applicant herein. In such circumstances, referred to above, the first thing that the RBI did was to address a letter to the MUCBL to ensure that the writ applicant and similarly situated directors step down from the Board of Directors. It was a positive mandate of the RBI to the MUCBL in this regard. I also take notice of the letter dated dated 2nd May, 2018 addressed by the Government of India to the MUCBL calling upon the MUCBL to explain as to why such Directors had not yet stepped down despite the instructions from the RBI.
37. Taking all this into consideration, the MUCBL, ultimately, passed a resolution No.159 which is at page-133 of the paper- book, Annexure-I, unanimously resolving to issue letter to the concerned Directors that they would cease to be the Director of the Bank with effect from 24th August, 2018. At the cost of repetition, I may quote a portion of the said resolution, which reads thus;
"Since it was instruction of RBI the bank was compelled to issue the letter as such till the closure of above accounts, the both director Shri Chandubhai I. Patel and Shri Ambalal J. Patel will not be allowed to work as a director of Bank and compelled to step down from the board of the Bank."
38. Thus, the facts of this case are quite peculiar. The mandate or the instructions issued by the RBI and the Government of India may be a part of the regulatory measures, but the fact remains that the MUCBL acted upon such instructions and the action taken by the MUCBL has been further endorsed by the RBI as well as the Government of India.
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39. I am of the view that this is not a matter in which the writ application has been brought against an independent action of the Multi-State Cooperative Bank. It is obvious that the action at the instance of the MUCBL is on the basis of the directives issued by the RBI. It could be argued that the RBI merely gave a reminder to the MUCBL to act in accordance with its policy and the guidelines and that by itself cannot be termed as an action taken by the RBI. However, the peculiar facts of this case has persuaded me to take the view that this writ application can be said to be maintainable.
40. In Ionic Metalliks (supra), the Division Bench of this Court, to which I was a party, has discussed in details as regards the maintainability of a writ application under Article 226 of the Constitution of India against a private Bank. In Ionic Metalliks (supra), the Bank involved was the Standard Chartered Bank. The Standard Chartered Bank issued a show-cause notice to the borrower calling upon him to show-cause as to why he should not be declared as a willful defaulter. Having regard to the subject matter, this Court, after exhaustive discussion, took the view that a writ petition is not maintainable against a private Bank. This Court also took the view that the show- cause notice issued to a defaulter was a part of the regulatory measures which the Bank was otherwise obliged to undertake in accordance with the guidelines issued by the RBI. The facts of the present case are slightly different and stands on altogether a different footing compared to the facts of Ionic Metalliks (supra).
41. As regards the powers of the High Court, to issue prerogative writs under Article 226 of the Constitution of India, Page 87 of 96 C/SCA/12852/2018 JUDGMENT the issue has been dealt with by the Supreme Court and the High Courts on several occasions. Before even referring to such rulings, it would be relevant to note the very expressions in Article 226 of the Constitution of India to "any person or authority" and "for the enforcement of the rights conferred by Part III and "for any other purpose". The said expressions would be sufficient to hold that there is no fetter or limitation on the power of the Court to issue a writ as against any class of persons as well as statutory authorities. The power is wide enough to reach any one dealing with any situation for the purpose of enforcing not only the fundamental rights, but also for any other purpose and to enforce legal rights of the citizens and statutory obligations and duties on the part of the Governmental, Statutory authorities, private companies and individuals. The series of restrictions which are enumerated by the various Courts are only self imposed restraints aimed at using the extraordinary power only to deserving situations. There is no difficulty while exercising the power as against the Government, Statutory authorities, Corporations and the Establishments coming within the definition of "State" under Article 12 of the Constitution of India. But when it comes to issuing a writ against private companies, establishments and individuals, the ground for exercising the power are restricted and narrowed down having regard to the extraordinary nature of the power and the availability of alternative remedies. Some of the grounds which would weigh against the exercise of the power are (i) availability of effective alternative remedy (2) absence of any public duty; (3) laches and unreasonable delay in approaching the Court; (4) Need to deal with and adjudicate upon complicated facts which would require detailed evidence oral or documentary etc. These are the factors which would Page 88 of 96 C/SCA/12852/2018 JUDGMENT dissuade the Courts from exercising the jurisdiction. But even if these dissuading factors exist, yet the Court can issue a writ, if the situation and interest of justice warrant interference and the monstrosity of the situation is such that refusal to exercise such power would result in grave injustice.
42. The observations made above are only culled out from the various judgments of the Supreme Court. Therefore, it would be a misnomer to say that a writ petition is not maintainable except where it is barred under the Constitution itself specifically. In other cases, it is a matter of exercise of discretion by the Court to issue or not to issue a writ.
43. Though the earlier decisions of the Supreme Court prior to and immediately after the Constitution prescribed stringent grounds for issuing writs, the Supreme Court subsequently held that having regard to the far-reaching expressions used in Article 226 of the Constitution of India, there was no justification to look back nor to feel oppressed by the earlier history of the writs in English law vide the judgment of the Constitution Bench of the Supreme Court in T.C.BASAPPA v. T.NAGAPPA . AIR 1954 SC 440.
44. In ROHTAS INDUSTRIES v. ITS UNION 1976 AIR 425 the Supreme Court observed as follows:-
"The expansive and extraordinary power of the High Courts under Article 226 is as wide as the amplitude of the language used indicates and so can affect any person
- even a private individual - and be available for any (other) purpose, even one for which another remedy may exist. The amendment to Art. 226(1-A) reiterates the Page 89 of 96 C/SCA/12852/2018 JUDGMENT targets of the writ power as inclusive of any person by the expressive reference to 'the residence of such person.' But it is one thing to affirm the jurisdiction, another to authorise its free exercise like a bull in a china shop. This Court has spelt out wise and clear restraints on the use of this extraordinary remedy and High Courts will not go beyond those wholesome inhibitions except where the monstrosity of the situation or other exceptional circumstances cry for timely judicial interdict or mandate. The mentor of law is justice and a potent drug should be judiciously administered. Speaking in critical retrospect and portentous prospect, the writ power has, by and large, been the people's sentinel on the qui vive and to cut back on or liquidate that power may cast a peril to human rights. We hold that the award here is not beyond the legal reach of Article 226, although this power must be kept in severely judicious leash."
45. The view taken by me in this matter as regards the maintainability of the present writ application under Article 226 of the Constitution against a Multi-State Cooperative Scheduled Bank in the peculiar facts of the case is fortified by a Full Bench decision of the High Court of Himachal Pradesh in the case of Vikram Chauhan vs. Managing Director, AIR (HP) 2013 083. The Hon'ble Chief Justice A.M. Khanwilkar (as his lordship then was) speaking for the Bench made the following observations;
"12. That takes us to the second part of the question formulated by the Division Bench, as to whether a writ would lie against the stated Cooperative Banks? This question, essentially, touches upon the scope of power of the High Courts to issue certain writs as predicated in Article 226 of the Constitution of India. This is completely independent issue. In a given case, in spite of the opinion recorded by the Court that the respondent concerned in a writ petition, filed under Article 226 of the Constitution of India, is not a State within the meaning of Article 12 of Page 90 of 96 C/SCA/12852/2018 JUDGMENT the Constitution of India. Even then, the High Court can exercise jurisdiction over such respondent in view of the expansive width of Article 226 of the Constitution of India. It is well established position that the power of the High Courts under Article 226 is as wide as the amplitude of the language used therein, which can affect any person even a private individual - and be available for any other purpose even one for which another remedy may exist (Rohtas Industries Ltd. and another vs. Rohtas Industries Staff Union and others (1976 2 SCC 82)15. In the case of Engineering Mazdoor Sabha and another vs. Hind Cycles Ltd. 1963 AIR (SC) 874 the Court opined that even if the Arbitrator appointed under Section 10-A is not a Tribunal for the purpose of Article 136 of the Constitution in a proper case, a writ may lie against his Award under Article 226 of the Constitution. In the case of Praga Tools Corporation vs. C.A. Imanual and others, 1969 1 SCC 585 the Apex Court held that it was not necessary that the person or the Authority on whom the statutory duty is imposed need be a public official or an official body. That a mandamus can be issued even to an official or a Society to compel him to carry out the terms of the statute under or by which the Society is constituted or governed and also to companies or corporations to carry out duties placed on them by the statutes authorizing their undertakings. Further, a mandamus would lie against a Company constituted by a statute for the purposes of fulfilling public responsibilities. In the same decision, the Apex Court examined the amplitude of the term "Authority" used in Article 226 of the Constitution. The Court opined that it must receive liberal meaning unlike the term in Article 12 of the Constitution. It went to observe that the words "any person or authority" used in Article 226 cannot be confined only to statutory authorities and instrumentalities of the State. It may cover any other person or body performing public duty irrespective of the form of the body concerned. It is emphasized that what is relevant for exercising power is the nature of the duty imposed on the body which must be a positive obligation owned by the person or Authority. Depending on that finding, the Court may invoke its authority to issue writ of mandamus. In the case of Life Insurance Corporation of India vs. Escorts Ltd. and others, 1986 1 SCC 264 the Constitution Bench opined that the question must be "decided in each case" with reference to particular Page 91 of 96 C/SCA/12852/2018 JUDGMENT action, the activity in which the State or the instrumentality of the State is enacted when performing the action, the public law or private law, character of the Constitution and most of the other relevant circumstances. In a given case, it may be possible to issue writ of mandamus for enforcement of public duty which need not necessarily to be one imposed by statute.
It may be sufficient for the duty to have been imposed by charter, common law, custom or even contract, as noted by Professor de Smith, which exposition has found favour with the Apex Court.
13. The Apex Court after referring to catena of decisions and authorities in the case of UP State Cooperative Land Development Bank Ltd. Vs. Chandra Bhan Dubey and others, 1999 1 SCC 741 has succinctly delineated the scope of authority under Article 226 of the Constitution. In para 27 of this decision, the Court opined that Article 226 while empowering the High Court for issue of orders or direction to any Authority or person does not make any difference between public functions or private functions, but did not go to elaborate that question in the fact situation of that case. It is unnecessary to multiply the authorities on the point except to observe that a writ would lie against even a Cooperative Society or Company. But that does not mean that the Court is bound to issue such a writ. It is the prerogative of the High Court to issue writ to any person or authority, which is not a State or an instrumentality of the State. The Court would do so with circumspection and keeping in mind the well defined parameters. Whether in the fact situation of a given case, the Court ought to exercise its authority to issue writ or order in the nature of writ under Article 226 of the Constitution, will have to be answered on the basis of the settled principles, on case to case basis. Thus, it will be inapposite to put it in a straight jacket manner that every writ petition filed against the Cooperative Banks must be dismissed as not maintainable or otherwise.
14. Counsel appearing for the parties invited our attention to several other decisions. However, we do not intend to dilate on all those authorities any further, except to mention the same. Counsel appearing for the Page 92 of 96 C/SCA/12852/2018 JUDGMENT Kangra Bank had relied on two Judges Bench decision in the case of Zorastrian Cooperative Housing Society Ltd. and another vs. District Registrar, Cooperative Societies (Urban and others), 2005 5 SCC 632 (para 32) which took the view that a Cooperative Society cannot be treated as State unless it fulfills the tests spelt out in Ajay Hasia's case by the Constitution Bench of the Apex Court, followed in the case of Praga Tools (supra). Reference was also made to the seven Judges Bench of the Apex Court in the case of Pradeep Kumar Biswas vs. Indian Institutes of Chemical Biology and others, 2002 5 SCC 111 (paras 1 to 4 and 40) and another decision in the case of Bhadra Shahakari S.K. Niyamita vs. Chitradurga Mazdoor Sangh and others,2006 8 SCC 552 (para 3) which deals with the question as to whether the appellant, Cooperative Society can be treated as State within the meaning of Article 12 of the Constitution. The learned Senior counsel for the H.P. Cooperative Society invited our attention to the decision of two Judges Bench of the Apex Court in General Manager, Kishan Sahkari Chini Mills Ltd. Sultanpur, UP vs. Satrughan Nishad and others, 2003 8 SCC 639 (paras 6 to 8) to contend that even if it is a case of nominated Directors of Society that does not presuppose that the State has perennial control over the Society. Reliance is also placed on the another decision of the Apex Court in the case of Shri Anadi Mukta Sadguru S.M.V.S.J.M.S. Trust vs. V.R. Rudani and others 1989 AIR (SC) 1607 (paras 14 to 16 and 19 to 21) and in case of Zee Telefilms Ltd. and another vs. Union of India and others, 2005 4 SCC 649 (paras 8,9 and 35)"
46. The Full Bench, ultimately, while proceeding to answer the reference apart from the answers to the other questions answered the question with regard to the maintainability of a writ application against a cooperative bank as under;
"As regards the second part of the question as to whether a writ would lie against the stated Cooperative Banks, we hold that it is not appropriate to give a definite answer to this question. For, it would depend on several attending factors. Further, even if the said Banks Page 93 of 96 C/SCA/12852/2018 JUDGMENT were held to be not a State within the meaning of Article 12, the High Court in exercise of powers under Article 226 of the Constitution of India, can certainly issue a writ or order in the nature of writ even against any person or Authority, if the fact situation of the case so warrants. In other words, writ can lie even against a Corporative Society. Whether the same should be issued by the High Court would depend on the facts of each case."
47. Having taken the view that in the peculiar facts of the case the writ application is maintainable, the next question that falls for my consideration is whether the action of the MUCBL is justified in law. In this regard, I am of the view that an appropriate authority of the RBI or any other authority that may be appointed by the RBI should give an opportunity of hearing to the writ applicant as regards his role in the two companies is concerned, namely, (I) Vimal Dairy Ltd. and (ii) Swastik Ceracon Ltd. There is nothing on record to indicate that any opportunity of hearing had been given to the writ applicant In this regard except few correspondence in writing. The writ applicant is an elected Director of the MUCBL. He has been asked to step down from the office. Asking him to step down from the office of the post of the Director would definitely have some civil consequences. In such circumstances, one opportunity of hearing should be given to the writ applicant. Thereafter, it shall be open for the authority concerned to take an appropriate decision and pass an appropriate order in accordance with law.
48. There is one more reason why I am persuaded to hold that this writ application is maintainable. At the cost of repetition, I refer to the amended bye-laws framed by the Bank under the Act, 2002, more particularly, bye-law No.39, Page 94 of 96 C/SCA/12852/2018 JUDGMENT which is in respect to the removal of the elected directors by the General Body. Bye-law No.39 has been referred to in the earlier part of the judgment. This particular bye-law No.39 makes it very clear that an elected director of the Board can be removed on the basis of the report of the Central Registrar or upon resolution of the General Body passed by its meeting by majority not less than 2/3rd of the members present if it is found that the Director concerned shall not be removed unless he has been given a reasonable opportunity of making a representation in the matter. This word representation is sought to be read and understood as a written representation and nothing beyond that. To put it in other words, it is sought to be argued on behalf of the respondents that for the purpose of invoking bye-law No.39, there is no obligation to give a personal hearing to the concerned Director before his removal.
49. I am not impressed by such a submission. Reasonable opportunity of making a representation should be read as an opportunity of hearing to the concerned Director in person. It may not be feasible or possible to explain everything in a representation. In such circumstances, if an opportunity is given to a concerned Director of personal hearing in person, the same may make a difference.
50. I am of the view that the bye-law No.39 has not been complied with in its proper perspective. In such a situation, an order passed by the CEO of the Bank on the basis of the resolution passed by the Board of Directors against one of its Directors in violation of the bye-laws, can be corrected by way of a writ petition. This is not because the bye-laws have the Page 95 of 96 C/SCA/12852/2018 JUDGMENT force of law, but on the ground that having framed the bye- laws prescribing the mode and method of removal of a Director, the Society must follow them, in the interest of fairness. If it is left to the sweet will and pleasure of the Society either to follow or not to follow the bye-laws, it would be inherently arbitrary, and may very likely give rise to discriminatory treatment. (see Srikonaseema Co-operative Central Bank Ltd. & Another Vs. N. Seetharama Raja, Air 1990 Andhra Pradesh 171)
51. In view of the above, this writ application is allowed in part. The communication dated 16th August, 2018 of the MUCBL to the writ applicant, Annexure-A to this writ application, Page-16 is hereby quashed. The RBI shall give one opportunity of hearing to the writ applicant and, thereafter, take an appropriate decision in accordance with law. While giving an opportunity of hearing to the writ applicant, the MUCBL shall also be heard through one of its authorized officers, and a representative from the Government of India (Ministry of Agriculture) shall also be heard. Let this exercise be undertaken at the earliest and an appropriate decision shall be taken within a period of three months from the date of the receipt of the writ of this order.
52. With the above, this writ application is disposed of.
(J.B.PARDIWALA, J) Vahid Page 96 of 96