Axis Bank Doesn't Perform Public Functions That Would Subject It To Writ Jurisdiction: Calcutta High Court
The Calcutta High Court bench of Chief Justice T. S. Sivagnanam and Justice Hiranmay Bhattacharyya has held that Axis Bank does not perform public functions that would subject it to writ jurisdiction. It held that adherence to RBI guidelines by a private bank does not equate to the performance of public duties.
The bench held that:
“the appellant bank carrying on the business or commercial activity of banking does not discharge any public function or public duty.”
Brief Facts:
Indian Cable Net Company Limited is a multi-system operator of cable television and a subsidiary of SITI Networks Limited. On March 30, 2019, Indian Cable Net Company Limited entered into a Term Loan Agreement with Axis Bank and secured the credit facilities with the deposit of title deeds for the property. SITI, owning 2,59,11,689 shares of Indian Cable Net Company Limited pledged these shares to secure the loan facilities. Indian Cable Net Company Limited claimed that it complied with the terms of the credit facilities and fully repaid the terms. Despite repeated requests via email, Axis Bank failed to issue the no-dues certificate and release the securities. Consequently, Indian Cable Net Company Limited lodged a complaint with the Ombudsman of the Reserve Bank of India but the complaint was rejected.
Indian Cable Net Company Limited then approached the Writ Court. The Single Judge allowed the writ petition and set aside the Ombudsman's order and directed the bank to issue the no-dues certificate and return the securities. Aggrieved, Axis Bank approached the High Court.
Axis Bank argued that due to SITI's default in repayment, its account was declared a Non-Performing Asset. The bank claimed a contractual right and right of lien under Section 171 of the Indian Contract Act to retain the pledged shares and title deeds.
It also challenged the maintainability of the writ petition and argued that Axis Bank, being a private entity, does not qualify as a "State" under Article 12 of the Constitution of India. He argued that the bank's banking operations do not constitute a public function.
Observations by the High Court:
The High Court referred to the decision of the Supreme Court in Phoenix ARC Private Limited vs. Vishwa Bharati Vidya Mandir and Ors where the Supreme Court held that private entities like Asset Reconstruction Companies (ARCs) lending money were not performing public functions. Similarly, in the Federal Bank Ltd. vs. Sagar Thomas and Ors., it was held that just because a private bank follows RBI guidelines, it does not mean it performs public duties. The Supreme Court held that private banks, even if regulated, do not perform statutory or public duties merely by following regulatory measures.
The High Court held despite its regulatory obligations; Axis Bank does not perform public functions that would subject it to writ jurisdiction. Further, it noted that Indian Cable Net Company Limited made multiple representations to the bank to return securities post-loan repayment, which were ignored. It made it to make a complaint to the Ombudsman under the 2021 Scheme. The Ombudsman dismissed the complaint.
The High Court noted that the 2021 Scheme, designed to resolve customer grievances expeditiously, categorizes banks as "Regulated Entities" under RBI's purview which in turn obligates the Ombudsman to address complaints about service deficiencies. The High Court noted that quasi-judicial authorities like the Ombudsman must provide reasoned decisions adhering to principles of natural justice. It noted that the Ombudsman, in rejecting the complaint, failed to provide a detailed rationale or sufficient opportunity for both parties to be heard.
Further, the High Court held that the bank's refusal to return the securities constituted a deficiency in service under the 2021 Scheme.
The bench held that:
“failure on the part of the bank to return the title deeds in respect of the property at Sector V, Bidhannagar, Saltlake and to issue no dues certificate even after repayment of the credit facilities amounts to “deficiency in service” on the part of the appellant bank which is a regulated entity under the 2021 Scheme.”
Therefore, the appeal was allowed in part.
Case Title: Axis Bank Limited Versus Indian Cable Net Company Limited & Ors
Case Number: M.A.T. 483 of 2024 With I.A. No. CAN 1 of 2023
Advocate for the Petitioner: Mr. Ratnanko Banerjee, Sr. Adv, Mr. Rishad Medora, Ms. Bhavika Deora and Mr. Abhirup Chakraborty
Advocate for the Respondent: Mr. Sabyasachi Chowdhury Ms. Rajashree Dutta Mr. Shounak Mukherjee Mr. S. Ganguli Mr. Shubradip Roy
Date of Judgment: 10.07.2024
Click Here To Read/Download Order or Judgment