Writ Jurisdiction Cannot Be Invoked Under Article 226 Against Decisions Of Lender/Banker Unless Compelling Reasons Like Statutory Violations: Kerala High Court

Justice K.Babu observed that the bank has rejected the request of the petitioner for restructuring of the loan after considering the viability of his proposal.

“It is trite that lending has always been the discretion of lending institutions on broad parameters. This Court, in the exercise of its jurisdiction under Article 226 of the Constitution of India, cannot replace the wisdom of the lender/banker in the process of lending unless there are compelling reasons, in a sense that there are all-around violations of the rules and regulations or any of the statutory provisions in this regard.”

The petitioner availed loan from the 6^th respondent in the year 2015 by depositing title deeds of property including a theatre complex to create an equitable mortgage. The petitioner committed default in repayment of the loan in 2020 and the bank classified the loan account as Non-Performing Asset (NPA) and initiated SARFAESI proceedings by issuing notice. The petitioner approached the High Court by filing W.P(C) No.25727/2021 which was disposed of by permitting the petitioner to approach the bank for restructuring of the loan or for a one-time settlement. Pursuant to this, the petitioner approached the bank for restructuring of the loan, and it was rejected by the bank. Aggrieved by this, the petitioner has approached the High Court by filing a writ petition.

The counsel for the petitioner alleged that his request was rejected by the bank contrary to the guidelines issued by the RBI. It was submitted that the loan restructuring was denied without considering the commercial viability of his property.

On the other hand, the respondent bank submitted that restructuring of loan was denied as it was not commercially viable and was against the MSME Rehabilitation and Restructuring policy of the bank. It was also submitted that there were other financial impediments to the bank for denial of restructuring of loan. It was also submitted that the firm managed by the petitioner was in loss and failed to meet the parameters for restructuring of the loan. It was further submitted that lender has the discretion to assess the viability of loan restructuring as the commercial contract of borrowing of money was between the lender and the borrower, whereas the RBI or Union Government can only provide broad guidelines.

The Court found that the bank had rejected the proposal of the petitioner for restructuring of the loan after considering the RBI circulars and finding that the proposal submitted by the petitioner was not commercially viable.  It was also noted that lending institutions like banks have the authority to assess the liability of a proposal based on the approved policies and make decisions.

“It is submitted that after analysing the inputs submitted by the petitioner the bank concluded that the borrower would not be able to generate positive cash flow, which would enable them to repay the obligation till the financial year 2030, which makes the proposal commercially not viable.”

On the basis of the above observations, the Court dismissed the writ petition and noted that the bank had considered all the materials before rejecting the proposal of the petitioner for restructuring of the loan.

"In the present case, the bank has carefully analysed the proposal for restructuring based on the inputs submitted by the petitioner himself and came to the conclusion that the proposal was not viable. It is evident from the materials placed before the Court that the bank has considered the entire relevant aspects while rejecting Ext.P13 proposal."

Counsel for the petitioner: Advocate Sajeev Kumar K Gopal

Counsel for the respondents: Deputy Solicitor General of India, Manu S, Government Pleader Jayan, Standing Counsels Sunil Shanker and Vidya Gangadharan

Citation: 2023 LiveLaw (Ker) 628

Case title: Binoy Paulose v Union of India

Case number: WP(C) NO. 11939 OF 2023

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