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J 2021 SCC OnLine Kar 12934 AIR 2021 Kar 155 2021 4 AI 20221109 095745 1 8
J 2021 SCC OnLine Kar 12934 AIR 2021 Kar 155 2021 4 AI 20221109 095745 1 8
2021 SCC OnLine Kar 12934 : AIR 2021 Kar 155 : (2021) 4 AIR Kant R 186 :
(2021) 6 Kant LJ 608 (DB)
failed to remit the agreed amount within the stipulated period i.e. on or before
15.03.2020.
(iii) The borrower vide letter dated 13.03.2020 had sought for elongation of
stipulated period of payment up to 31.05.2020; the bank vide letter dated
30.05.2020 rescinded the OTS facility, the agreed amount not reaching its
hands in terms of OTS. The borrower vide representation dated 26.06.2020
requested the bank to withdraw the aforesaid Rescinding Letter dated
30.05.2020 stating that minimum 45 days were required for assignment of
debt and that he would pay interest on the delayed payment, as well; the
bank declined and went ahead with the coercive acts of recovery since the
conduct of the borrower did not generate confidence.
(III) RECOVERY OF DEBTS, WRIT JURISDICTION AND APEX COURT
DECISION IN CAVALET INDIA CASE:
(i) The vehement contention of learned Sr. Adv. Mr. Uday Holla appearing for the
borrower that already Rs. 4.20 crore was paid to the bank, and rest of the
money was being organized by intended assignment of debt done with the
consent of the lender bank, may be true; however, the bank had specifically
made it clear whilst granting consent for the assignment of debt that in no
circumstance the timeline for payment in terms of OTS would be elongated;
the borrower having acquiesced in the same now cannot turn around and
contend to the contrary; the equity which he seeks at the hands of this Court
estopps him from blowing hot and cold.
(ii) The OTS Schemes are in the nature of an apology to the basic norm on which
the law of contract is founded : pacta sunt servanda (ascribed to Hugo
Grotius, a 17th Century Dutch Jurist) which means “do, as agreed”; the norm
requires that the debtor should repay the debt as per the terms of loan
agreement; these schemes are by their very nature & effect a concession that
mainly benefit the defaulting borrowers; not the ideals of social contract, but
the realities gained through the experience of life dictate formation of such
policies; a person who avails the concession, cannot later turn around and
seek alteration of the terms subject to which such concession was granted in
accordance with the statutory schemes like the OTS; an argument to the
contrary, subject to all just exceptions, would be unconscionable : ordinarily,
the Writ Courts do not grant relief where the grounds for prayer are tainted
with unconscionability.
(iii) In matters between the banker & borrower, a Writ Court has no much say
except in two situations : where there is a statutory violation on the part of
the bank/financial institution, or where the bank acts unfairly/unreasonably;
Courts exercising constitutional jurisdiction u/A 226 do not sit as Appellate
Authorities over the acts & deeds of the bank and seek to correct them; even
the doctrine of fairness/reasonableness does not convert the Writ Courts into
appellate authorities over administrative decisions concerning the banking
business; unless the action of the bank is apparency malafide, even a wrong
decision taken by it cannot be interfered.
(iv) It is not for the Court or a third party to substitute it's decision howsoever
prudent or business like it may be, for the decision of the bank; in commercial
matters, the Courts do not risk their judgments for the judgments of the
bodies to which that task is assigned; a Public Sector Bank or a Financial
Institution cannot wait indefinitely to recover its dues; the fairness required of
the bank cannot be carried to the extent of disabling it from recovering what
is due; in matters of loan transactions, fairness cannot be a one-way street;
both the bank & the borrower have to be equally fair to each other; nearly,
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thus said the Apex Court in Cavalet India (Supra); these observations equally
apply to the appeals at our hands.
(v) As already mentioned above, the OTS offers have been made by the borrower
thrice; he was accorded consent by the Bank to the assignment of loan to the
company in question subject to the rider that the timeline for payment in
terms of OTS would not be altered; the loan transaction essentially being a
matter of contract, the OTS-like-arrangement is only a novatio & a new
arrangement is brought about by the bargain of parties namely the lender, the
borrower & the surety, done across the table; that being the position,
ordinarily, the Courts cannot alter the terms of contract even when it has
statutory elements; the time within which the remittance of the amount has
to be made is an essential term of OTS, disentitles the defaulting borrower
from invoking the writ jurisdiction; the Division Bench decision in Rama
Industries v. the Assistant General Manager, AIR 2006 P&H 95, strengthens
this view of ours; we do not subscribe to the view taken by a learned Single
Judge of this Court in W.P. No. 3749/2007 (GM-DRT) between Kemtrode
Private Ltd. v. The Recovery Officer, DRT, disposed of on 01.08.2008.
(vi) There is yet another reason for not agreeing with the passionate submission
of Mr. Holla : granting relief to the defaulting borrower has to be consistent
with the statutory scheme of OTS; the Writ Courts cannot ask the Bank to do
something that offends the intent & content of such schemes whereunder
transactions have been consciously struck between the parties; after all,
Courts cannot rewrite the contract between the parties in the absence of
statutory enablement; secondly, the concession if shown by the Writ Courts to
a defaulting borrower who has availed the benefit under a statutory OTS
Scheme, would run the risk of being pressed into by unscrupulous debtors as
a precedent to defer, if not defeat, the banker's actions for recovery of
outstanding loans; this is undesirable; it is not that, in extraordinary cases
too, a scrupulous litigant cannot be granted relief In writ jurisdiction;
however, no such case is made out before us.
(IV) LOCUS STANDI OF SURETY TO MAINTAIN APPEAL:
(i) The liability of the surety is co-extensive with that of the principal borrower,
edicts Section 133 of the Indian Contract Act, 1872; such liability is co-
terminus as well; Mr. Holla is right in contending that once the OTS payment
is made, the surety too is discharged; when the law of contract was enacted
during the Colonial Regime about a century & half ago, the proposition was as
simple as it was stated; but, now the matter has become a bit complex; some
implications ensue from the intervening legislation namely, the Credit
Information Companies (Regulation) Act, 2005; the loan transaction
culminating in the availment of OTS facility and its subsequent rescinding by
the lender bank arguably constitute a ‘credit information’ as defined u/s 2(d)
of the Act; the guarantor of loan answers the inclusive definition of ‘client’
given u/s 2(c); similarly the borrower fits in Section 2(b) and the banker, in
the definition of ‘credit institution’ given u/s 2(f); the surety arguably suffers
an adverse ‘credit scoring’ as defined u/s 2(g); thus, the surety has some
legal stake in the OTS deals, more particularly when the letter containing the
OTS offer was officially marked to him, as well.
(ii) However, the above having been said, there is no contract between the
borrower and the surety for protecting the arguable ‘credit scoring’ of the
later; a surety is entitled to the protection of credit scoring so that he will not
be disfavoured when he goes to other banks for borrowing, is understandable;
having this in mind, presumably, the surety had made the representation
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alarming the bank that the auction of mortgaged property would fetch more
money than the OTS offer; he had moved the Writ Court too; he himself has
come up with an offer of Rs. 23 crore before us; this is about Rs. 8 crore more
than the last OTS offer; however a caveat needs to be entered : the right of
contribution which the surety may have qua the borrower may not exceed the
value of the said OTS offer; we hasten to add that we have not expressed any
opinion on these aspects here, the same not falling within the focal point of
our consideration.
(iii) The records disclose that the appellant surety had vide representation dated
12.02.2019 objected to the bank casually accepting the OTS offers to the
detriment of public money; he had approached the Writ Court in W.P. No.
109279/2019 which came to be disposed of on the very same day vide order
dated 06.04.2021 itself, directing the bank to consider the said
representation; both the principal borrower and the lender banks being parties
eo nominee to the said writ petition were represented by their advocates too;
a copy of this order is now placed on record; this itself invests sufficient locus
standii in him.
(iv) During the course of hearing of these appeals, the appellant surety came
forward with the ‘Memo of Undertaking’ dated 07.07.2021 which reads as
under:
“The undersigned counsel for the appellant herein most humbly submits that,
pursuant to the inquiry of this Hon'ble Court the appellant Sri. K. Ramappa, that
the appellant is ready to pay Rs. 23,00,00,000/- (Rupees Twenty Three Crore only)
Towards the one time settlement of the Loan. The appellant herein undertakes to
pay the same within 30 days from the date of this Hon'ble Court…”
It is not that the borrower was not aware of surety's representation dated
12.02.2019 in which he had stated inter alia about the subject mortgaged property
being capable of fetching the auction price much higher than the sums stated in the
OTS offers; after all the surety has also a stake in the loan transaction and he
cannot escape the liability; that being the position, the principal borrower in all
fairness ought to have arraigned him as a respondent to the writ petition; that
having not been done, he is not justified in opposing surety's request for the grant
of leave to file the writ appeals; added to this, the borrower did not avail the
opportunity of revising his OTS offer; therefore, we granted the leave as sought for
and heard the appeals on merits.
(V) LOCUS STANPII OF THE AUCTION PURCHASER:
During the pendency of the writ petition, the learned Single Judge vide ad
interim order dated 24.03.2021 had, in a sense, permitted auctioning of the
property by restraining the confirmation of contemplated auction sale; auction
purchaser had also sought for his impleadment in the writ petition; the e-auction
was held on 08.04.2021 (presumably being unaware of the disposal of the writ
petition on 06.04.2021) and the highest bid of Rs. 15,00,52,000/- of the
appellant in Writ Appeal No. 100103/2021 came to be accepted; he has also paid
Rs. 78 lakh on 05.04.2021 being the pre-deposit for participation in the auction;
he has also remitted Rs. 2,97,13,000/- on 09.04.2021; that apart, he has now
come forward with a very high offer of Rs. 25,20,99,999/-; this is much higher
than the revised OTS offer of the borrower i.e., Rs. 15.20,00,000/-; the borrower
despite giving the same opportunity as was given to the appellants herein, declined
to improve his offer figure; when the public money is involved, a Writ Court has to
scrutinize the things with objectivity and ensure that no loss of such money takes
place. Therefore, leave is granted for maintaining the appeal.
VI. LOAN TRANSACTION; BREACH OF OTS; DEBTOR'S EQUITY ARGUMENTS &
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JUDICIAL INTERVENTION:
(i) The learned Single Judge has granted relief to the borrower on the doctrine of
promissory estoppel; this doctrine has several shades of meanings &
limitations; it cannot be operated as a thumb rule; several civilized
jurisdictions treat promissory estoppel as an offshoot of equity; as already
mentioned above, the equity & fairness required of a Public Sector Banks
cannot be carried too far and to an unrealistic extent of disabling or delaying
the very recovery of the public money which they have lent; while not
insisting upon the borrower to honour the OTS commitment undertaken by
him; the Banks alone cannot be shackled hand & foot by invoking the doctrine
of promissory estoppel.
(ii) After all, these equity-born-doctrines are not a one-way traffic; equity seeker
himself has a duty to be equitable to the other side; this is how the Apex
Court alerted the writ courts in Cavalet India case (supra); despite grating
opportunity the borrower did not come forward with the revised offer, whereas
the appellants did; where the public money is involved, a Writ Court has to
assume a realistic role of a trustee in ensuring that the public money is not
lost in the conundrums of constitutional contentions; Courts have to have a
pragmatic approach when matters touching economics are brought before
them for adjudication.
(VII) THE SUSPICIOUS CONDUCT OF BANK OFFICIALS:
(i) As a constitutional Court, we will be failing in our duty, if we do not say a few
words about the way the bank authorities, that be, treated the matter with a
culpable casualness if not in connivance; the term loan of January 2009
coupled with the cash-credit facility runs into more than Rs. 100 crore rupees,
more than a decade having lapsed; in April 2017 the OTS offer of Rs. 5 crore
was made; bank turned it down only in November 2018; in January 2019, Rs.
11 crore offer was made; this was later revised to Rs. 15.20 crore in
November 2019; borrowers writ petition was allowed on 06.04.2021; the
same day surety's writ petition was also disposed off directing the bank to
consider his representation wherein he has specifically mentioned about the
possibility of fetching a much higher auction money;
(ii) Strangely the mortgaged property was auctioned on 08.04.2021; the highest
bid of Rs. 150,052,000/- of the appellant auction purchaser came to be
accepted; the very same buyer has revised the bid to Rs. 252,099,999/-
before us; even the surety has come up with an offer of Rs. 23 crore; the OTS
deal struck between the bank and the borrower in a small sum of Rs.
150,052,000/- raises a strong suspicion as to there being some ‘shady deal’
with the connivance of authorities of the bank; this needs to be investigated
into by the Reserve Bank; matter merits attention of the Comptroller &
Auditor General of India, as well.
In the above circumstances, we make the following:
ORDER
(i) Both these appeals succeed in part; the impugned Judgment & Order made
by the learned Single Judge are set at naught; Writ Petition No. 100312/2021
of the borrower, is dismissed;
(ii) The lender bank shall accept the revised offer of the appellant auction-
purchaser in a sum of Rs. 25,20,99,999/- (Rupees twenty five crore, twenty
lakh, ninety nine thousand, nine hundred & ninety nine) only; he shall remit
the remainder of the said amount within a period of six weeks failing which,
the amount which he has already deposited shall stand adjusted to the credit
of the principal borrower;
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(iii) If what is directed in the immediately preceding paragraph (ii) above, does
not materialize because of the fault attributable to the auction-purchaser, then
the offer of the surety appellant Mr. K. Ramappa in a sum of Rs.
23,00,00,000/- (Rupees twenty three crore) only shall be accepted; he shall
remit 50% of this amount within four weeks and the remainder within next
four weeks; if he fails to adhere to the undertaking given to this Court, he
shall pay to the Bank on account of the borrower a sum of Rs. 2.30 crore
(Rupees two crore thirty lakh) only by way of forfeiture within next two weeks;
the lender bank may recover this along with interest at the rate of 18% p.a.
thereon for the delayed period;
(iv) If what is directed in the immediately preceding paragraph (iii) above does
not materialize because of the fault attributable to the appellant surety, the
bank shall accept the revised OTS offer of the principal borrower M/s. Pavaman
ISPAT Private Ltd. made in a sum of Rs. 15,20,00,000/- (Rupees fifteen crore
& twenty lakh) only; the balance of this amount shall be remitted by the
borrower within a period of six weeks following the failure of the offer of the
appellant-surety, as mentioned in the preceding paragraph No.(ii) above;
interest too is chargeable.
Costs made easy.
Registry to mark a copy of this judgment to the RBI Governor and Comptroller &
Auditor General of India, New Delhi, forthwith.
———
* Dharwad Bench
† This Writ Appeal is filed under Section 4 of the Karnataka High Court Act, 1961, praying this Hon'ble Court to
set aside the order dated 06.04.2021, passed by the learned Single Judge of this Hon'ble Court in matter bearing
W.P. No. 100312/2021 and consequently, dismiss the said writ petition bearing W.P. No. 100312/2021.
‡ This Writ Appeal is filed under Section 4 of the Karnataka High Court Act, 1961, praying this Hon'ble Court to
call for the records in W.P. No. 100312/2021 and to set aside the order dated 06.04.2021, passed in W.P. No.
100312/2021, by the learned Single Judge of this Hon'ble Court in the interest of justice & equity.
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