IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

WRIT PETITION [C] No. 291 OF 1998

Common Cause (A Regd. Society)              …… Petitioner

Versus

Union of India & Anr.                                    …… Respondents

O R D E R

A.K. PATNAIK, J.

The  petitioner  is  a  society  duly  registered  under  the  

Societies Registration Act, 1860 and is engaged in taking up  

various  common  problems  of  the  people  for  redressal.  

Concerned  with  the  increase  of  the  non-recovered  loans  

advanced  by  the  public  and  private  sector  banks  in  India  

which have come to be known as Non-Performing Assets (for  

short “NPAs”), the petitioner has filed this Writ Petition under  

Article 32 of the Constitution as a Public Interest Litigation  

praying for appropriate writs and directions.  

2. The petitioner  has stated  in  the  Writ  Petition  that  the  

aggregate  figure  of  NPAs  worked  out  on  the  basis  of  data  

compiled by the Banking Division of the Ministry of Finance is  

Rs.43,577/- crores.  According to the petitioner, non-recovery  

of  such  huge  amount  of  NPAs  has  resulted  in  substantial  

funds  of  banks  not  being  available  for  development  of  the  

country’s economy and this, in turn, has affected the citizens.  

The petitioner has alleged that the steps taken by the Union  

Government  to  recover  the  NPAs  have  not  yielded  positive  

results and the Finance Ministry of the Union Government is  

reported  to  have  admitted  that  27  nationalised  banks  had  

written off a staggering amount of Rs.4,010/- crores as bad  

debts  during  1994-95  and  1995-96.   According  to  the  

petitioner, most of the bad debts are on account of defaults  

made by men of substantial means and influence and if proper  

checks are introduced to ensure that loans and advances are  

not  given  to  fraudulent  borrowers,  the  NPAs  will  get  

substantially reduced.

3. Mr. Prashant Bhushan, learned senior counsel appearing  

for  the  petitioner,  submitted  that  in  the  Writ  Petition,  as  

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originally filed, the petitioner has suggested various measures  

to check the menace of increasing NPAs by evolving a proper  

mechanism that  would reduce the  possibility  of  fresh loans  

becoming NPAs, but subsequently this Court passed orders on  

09.08.2005, 08.12.2005, 09.11.2006 and 30.01.2008 directing  

the  petitioner  to  make  written  suggestions  to  the  Union  

Government and also directing the Union Government to hold  

meetings with the concerned functionaries to consider those  

suggestions.  He submitted that pursuant to these directions,  

the petitioner has made various suggestions in its letters dated  

02.08.2001, 25.08.2005 and 10.08.2006, but except for one  

suggestion regarding the definition of “willful defaulter”, all the  

suggestions  were  rejected  by  the  Union  Government.   He  

submitted  that  the  reasons  given  by  the  Government  for  

rejecting  the  suggestions  are  that  if  the  suggestions  are  

adopted, the public sector banks will become less competitive  

and will loose its customers to the private sector banks.  He  

explained that the suggestions made by the petitioner mainly  

emphasized that the loans and advances must not be given  

without fully checking the creditworthiness and past record of  

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the borrowers and that companies, which have been “willful  

defaulters”  in  the  past  or  whose  subsidiary  companies  and  

promoters have willfully defaulted in the past in repaying the  

loans  and  advances,  should  not  be  given  fresh  loans  and  

advances.   He  also  explained  that  the  suggestions  of  the  

petitioner also stress on the greater accountability of the bank  

officials  and  on  the  personal  liability  of  the  promoters  by  

making  personal  guarantee  of  the  promoters  mandatory  in  

every case.  He vehemently argued that the Union Government  

could  not  possibly  have  any  objection  to  these  suggestions  

made by the petitioner and the reasons given in the affidavit of  

Shri  Dharam  Paul  Bhardwaj,  Under  Secretary,  Ministry  of  

Finance,  Department of  Economic Affairs  (Banking Division)  

filed on behalf of the Union Government for not accepting the  

suggestions  are  frivolous.   On  behalf  of  the  petitioner,  he  

urged the Court to issue appropriate writs and directions to  

the respondents to implement the suggestions made by the  

petitioner.

4.  Mr. Gopal Subramanium, learned Solicitor General for  

the  Union  of  India,  however,  submitted,  relying  on  the  

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additional affidavit, that a number of steps have already been  

taken  by  the  Ministry  of  Finance,  Government  of  India,  to  

address the  issue of  NPAs and bank frauds and these are:  

action taken under the Recovery of Debts due to Banks and  

Financial  Institutions Act, 1993 (for short “the DRT Act”)  to  

recover the NPAs of Banks, the enactment of the Securitization  

and Reconstruction of  Financial  Assets  and Enforcement  of  

Security  Interest  Act,  2002  (for  short  “the  SARFAESI  Act”)  

which empowers the banks to realize the securities furnished  

by the borrowers to the bank and to recover the loans and  

advances from the defaulted borrowers, the enactment of the  

Credit  Information  Companies  (Regulation)  Act,  2005 which  

provides for the setting up of Credit Information Companies for  

collection,  sharing  and  dissemination  of  credit  information,  

which  will  help  in  arresting  fresh  accretion  of  NPAs  and  

framing of the rules under the Credit Information Companies  

(Regulation)  Act,  2005,  which would ensure  that  the  Credit  

Information Companies  collect,  process and collate  accurate  

and  complete  data  relating  to  the  borrowers,  so  that  fresh  

loans  and  advances  given  to  the  borrowers  do  not  become  

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sticky.   He submitted that besides the legislative measures,  

the Reserve Bank of India has been circulating a list of non-

suit filed ‘doubtful’ and ‘loss’ borrowal accounts of Rs. 1 crore  

and above, on 31st March and on 30th September every year to  

the banks and financial institutions for their confidential use.  

He submitted that the banks and the Union Government also  

refer cases of bank frauds to the C.B.I. wherever considered  

necessary  and appropriate  and that  the  Union Government  

has  set  up  in  July,  2003  the  “Serious  Fraud  Investigation  

Office” (SFIO), which comprises officers specialized in various  

disciplines,  such  as  Taxation,  Customs,  Central  Excise,  

Information  Technology,  Company  Law,  Capital  Market,  

Banking,  Investigation/ Police,  Forensic Audit,  etc.  and this  

expert and experienced body has already started functioning  

since October, 2003 and has been assigned a total of 51 cases  

of serious frauds up to 30.04.2008 out of which 30 cases have  

already  been  investigated  and  18  cases  are  under  

investigation.  He  explained  that  SFIO  is  presently  working  

under  the  existing  provisions  of  the  Companies  Act  but  

legislation will  be brought to invest the SFIO with adequate  

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reach and powers.  He submitted that the Central Government  

has  already  constituted  a  Committee  of  Experts  under  the  

Chairmanship of the Ex-Deputy Governor of the Reserve Bank  

of India to make recommendations regarding the SFIO and the  

report of this Committee of Experts as and when received will  

be considered by the Union Government.  He argued that since  

adequate  mechanism presently  exists  to  tackle  the  issue  of  

NPAs and bank frauds and there has in fact  been a sharp  

decrease in the level of NPAs in scheduled commercial banks  

from 4.4% of their net advances as on 31.03.2003 to 1.0% as  

on  31.03.2008,  this  Court  should  not  issue  any  writs  or  

directions, as prayed for, by the petitioner.  

5. In rejoinder, Mr. Prashant Bhushan submitted that the  

reduction in NPAs, as claimed by the Union Government, has  

come about by waivers, write-offs, rescheduling of repayments,  

moratoriums  and  one-time  settlements  but  all  this  has  

actually resulted in loss of substantial amount of public funds.  

He submitted that as per the report of the Reserve Bank of  

India on the trend and progress of banking in India for 2004-

2005,  total  NPAs  recovered  by  the  banks  amounted  to  

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Rs.20,568/-crore and out of this, an amount of Rs.14,506/-  

crore was recovered through asset reconstruction companies  

and these recoveries are nothing but purchase of NPAs from  

the banks by another set of public companies.  He submitted  

that  the  report  of  the  Reserve  Bank of  India  would  further  

show that during 2004-2005 an additional Rs.16,000 crore of  

NPAs have accrued. He submitted that the measures taken by  

the Union Government to reduce the NPAs, therefore, have not  

been  effective.   He  finally  submitted  that  without  statutory  

power  and without  qualified  manpower,  the  SFIO would  be  

teeth-less and incompetent and this Court should direct the  

Union  Government  to  make  the  SFIO  an  independent  

statutory body consisting of qualified manpower as suggested  

by Mr. Harish Salve, learned senior Counsel.   

6. Mr. Bhushan cited the decision of this Court in Vishaka  

and  Others v.  State  of  Rajasthan  and Others [(1997)  6 SCC  

241] for the proposition that if there is no enacted legislation  

to  provide  for  the  effective  enforcement  of  any fundamental  

right,  this  Court  can  issue  guidelines/directions  for  the  

effective enforcement of the fundamental right under Article 32  

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of the Constitution, which would be law under Article 141 of  

the Constitution, till a suitable legislation is enacted to occupy  

the field.  He also relied on the decision in  Vineet Narian &  

Ors. v. Union of India & Anr. [(1998) 1 SCC 226] in which this  

Court has observed that the judiciary must step in, in exercise  

of  its  constitutional  obligations  under  Article  32  read  with  

Article 142 of the Constitution, to provide a solution till such  

time as  the  legislature  acts  to  perform its  role  by  enacting  

proper legislation to cover the field.  He submitted that in case  

this Court is not inclined to issue directions or writs in the  

matter,  the  Court  can  at  least  direct  that  the  suggestions  

made  by  the  petitioner  for  checking  the  NPAs  in  future  be  

referred to an independent expert committee.  

7. In  Vishaka and Others v.  State of Rajasthan and Others  

(supra)  cited  by  Mr.  Bhushan,  this  Court  held  that  in  the  

absence of enacted law to provide for the effective enforcement  

of  the  basic  human right  of  gender  equality  and guarantee  

against  sexual  harassment  and  abuse,  more  particularly  

against  sexual  harassment  at  workplaces,  some  guidelines  

and  norms  for  due  observance  at  all  workplaces  or  other  

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institutions were required to be laid down by this Court until a  

legislation is enacted for the purpose and this Court made it  

clear that this was required to be done in exercise of the power  

available under Article 32 of the Constitution for enforcement  

of the Fundamental rights guaranteed under Articles 14, 15,  

19(1)(g) and 21 of the Constitution.  Similarly,  in  Vineet  

Narain and Others v.  Union of India and Another (supra), this  

Court  issued  some  directions  for  rigid  compliance  till  such  

time as the legislature steps in to substitute them by proper  

legislation and these directions were made under  Article  32  

read with Article 142 of the Constitution to implement the rule  

of law wherein the concept of equality enshrined in Article 14  

is embedded.  Hence, in both the cases cited by Mr. Prashant  

Bhushan,  the  Court  issued  writs  and  directions  for  

enforcement of fundamental rights conferred by Part-III of the  

Constitution, but in the present case, the petitioner has not  

made out a case that for enforcement of any right guaranteed  

under  Part-III  of  the  Constitution,  writs  or  directions  are  

required to be issued by this Court  under Article  32 of  the  

Constitution.   

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8. Moreover, in  Vishaka and Others v.  State  of  Rajasthan   

and Others (supra), this Court laid down guidelines and norms  

for due observance at work places and institutions to prevent  

sexual harassment of working women, because there was no  

law to prevent such sexual harassment.  In the present case,  

we  find  from  the  additional  affidavit  filed  on  behalf  of  the  

Union of India that through various legislative measures such  

as  the  DRT  Act,  the  SARFAESI  Act,  2002,  the  Credit  

Information  Companies  (Regulation)  Act,  2005  and  through  

some administrative measures, the respondents are trying to  

reduce the number and amount of NPAs and to detect  and  

check bank frauds in future.  

9. According  to  Mr.  Prashant  Bhushan,  however,  these  

legislative  and administrative  measures  taken by  the Union  

Government  have  not  been  effective  in  reducing  and  

controlling the NPAs.  Whether legislative and administrative  

measures taken by the Union Government have been effective  

or not is not for the Court but for the Union Government and  

Parliament to consider because reduction and control of NPAs  

are not within the domain of judiciary but within the domain  

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of  the  Executive  and  Legislature  under  our  Constitution.  

Moreover, as has been observed by P.N. Bhagwati, J. in State   

of  M.P.  and Others v.  Nandlal  Jaiswal  and Others [(1986) 4  

SCC  566]  in  field  of  economic  activities,  there  has  to  be  

judicial deference to Legislative and Executive judgment and  

decisions on complex economic matters are  to be based on  

experimentation or what one may call ‘trial and error method’.  

It  is  therefore  not  for  Courts  to  sit  in  judgment  whether  a  

particular policy decision of the Government is effective or not,  

but for Parliament to debate and decide on the policy decision.  

In  a  recent  decision  of  this  Court  in  Villianur  Iyarkkai   

Padukappu Maiyam v. Union of India and Others [(2009) 7 SCC  

561], Panchal, J. writing the judgment on behalf of a three-

Judge Bench observed:

“It is neither within the domain of the courts nor the  scope of judicial review to embark upon an enquiry  as to whether a particular public policy is wise or  whether better public policy can be evolved.  Nor are  the courts inclined to strike down a policy at the  behest of  a petitioner merely because it  has been  urged that a different policy would have been fairer  or wiser or more scientific or more logical.  Wisdom  and  advisability  of  economic  policy  are  ordinarily  not amenable to judicial review.  In matters relating  to  economic  issues  the  Government  has,  while  

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taking a decision, right to “trial and error” as long  as both trial and error are bona fide and within the  limits of the authority.  For testing the correctness  of a policy, the appropriate forum is Parliament and  not the courts.”

10. The Union Government, however, must ensure that SFIO  

is  effective  in  detecting  and  preventing  bank  frauds  by  

influential people. We find that the Central Government has  

constituted a Committee of Experts under the Chairmanship  

of Shri Vepa Kamesam, Ex-Deputy Governor of Reserve Bank  

of India, with the following terms of reference:

(a)  Assessment  of  the  need  for  and  details  of  a  separate  stature  to  govern  the  constitution  and  functioning of SFIO;

(b) The nature and details of the legislative changes  as  may  be  required  in  existing  laws,  to  enable  effective functioning of SFIO including prosecution  of offences detected by it;

(c) The mechanism for referral of cases to SFIO and  coordination  of  activities  of  SFIO  with  other  agencies/organizations  of  the  Central  and  State  Governments, including investigating;

(d) Powers of SFIO and its investigation officers;

(e) Specification of offences and penalties to enable  effective conduct of investigation agencies and the  need for Special Courts for trial of corporate fraud  cases; and  

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(f) Other matters consequential to or in pursuance  of the above.

We have no doubt that this Committee of Experts under the  

Chairmanship of Ex-Deputy Governor of Reserve Bank of India  

will suggest effective measures, legislative or administrative, to  

ensure that  bank frauds are prevented in future and the NPAs  

are  kept  to  the  minimum.   We  hope  and  trust  that  this  

Committee under the Chairmanship of Ex-Deputy Governor of  

Reserve Bank of India will consider the suggestion to make the  

SFIO  (or  any  similar  body)  a  statutory  authority  having  

sufficient powers and having the required autonomy to be able  

to effectively deal with the problems of bank frauds and NPAs.  

A copy of  this  order  will  be  placed by the respondent No.1  

before the Committee of Experts.

11. The writ  petition and the application for impleadment/  

intervention stand disposed of.  No costs.

……………………..J.                                                                   (J. M. Panchal)

……………………..J. New Delhi,                                                  (A. K. Patnaik) August 18, 2010.    

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