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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOs.  4970-4971          OF 2009 [Arising out of SLP (C) No. 5249-5250 of 2008]

M/s Sardar Associates & Ors. …Appellants

Versus

Punjab & Sind Bank & Ors. …Respondents

J U D G M E N T  

S.B. SINHA, J :   

1. Leave granted.

2. Source of power on the part of the Reserve Bank of India to issue  

circulars  and  guidelines  as  regards  one  time  settlement  is  the  question  

involved herein.   It  arises  out  of  a judgment  and order  dated  1.02.2008  

passed in Review Petition No. 7 of 2008 and order dated 21.11.2007 passed  

by a Division Bench of the Punjab and Haryana High Court  in C.W.P. No.  

8267 of 2007 whereby and whereunder an order dated 13.04.2007 passed by

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the  Debt  Recovery  Appellate  Tribunal,  Delhi  (for  short  “the  Appellate  

Tribunal”) directing the respondent – bank to settle the case of the appellants  

herein in terms of the said guidelines as applicable at the time of declaring  

the account as Non Performing Assets (NPA) and not to recover the said  

amount in terms of the judgment  and recovery certificate dated 23.11.2006  

issued  by  the  Debts  Recovery  Tribunal  –  II,  Chandigarh  (for  short  “the  

Tribunal”) in Appeal No. 26 of 2007, was set aside.

3. Bereft of all unnecessary details, the fact of the matter reads as under:

Appellants herein as also the Performa respondent Nos. 2 to 11 along  

with one Smt. Darshan Kaur (since deceased) obtained the facilities for grant  

of loan for a sum of Rs. 3, 54,50,000/- for business purposes which was  

being  carried  out  by  them  under  the  name  and  style  of  M/s.  Sardar  

Associates Limited, appellant No. 1 herein.  The said amount was sanctioned  

and disbursed from time to time.  Indisputably, the appellant No. 2 and the  

Proforma respondent Nos. 2 to 11 as also the said Smt. Darshan Kaur stood  

as guarantors.  Appellant Nos. 1 and 2 as also Proforma respondent Nos. 5  

and 7 also mortgaged their properties in favour of the respondent – Bank by  

way  of  security  to  the  said  amount.   Defaults  having  been  made  in

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discharging their  liabilities,  their  assets were declared as NPA as per the  

guidelines issued by the Reserve Bank of India.   

4. A proceeding was initiated by the respondent – Bank purporting to be  

under Section 13(2) of the Securitization and Reconstruction of Financial  

Assets and Enforcement of Security Interest Act, 2002 (for short “the 2002  

Act”) for recovery of the said amount together with interest upon due service  

of  a  notice in terms of Sub-section (4)  of  Section 13 thereof.   The total  

amount of claim laid before the Tribunal by the bank as against the debtors  

was  Rs.  4,16,85,443.62  inclusive  of  interest  upto  31.07.2003.   The  said  

application  was  allowed  by  the  Tribunal  whereagainst  an  appeal  was  

preferred before the Appellate Tribunal.

5. Indisputably, pursuant to the judgment and order of the Tribunal,  a  

recovery certificate was issued for recovery of a sum of Rs. 4,16,58,581.62  

along  with  pendent  lite and  future  interest  at  the  rate  of  12% p.a.  with  

quarterly rests from the date of filing of the application till realization.

It  is at that stage, the appellant No. 1 approached the respondent –  

bank  for  settlement  of  their  disputes  purported  to  be  in  terms  of  the

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guidelines issued by the Reserve Bank of India.  They made an offer for a  

one  time settlement  for  a  sum of  Rs.  345.31  lakhs.   The  said  proposal,  

however, was not accepted by the respondent – Bank.

6. Respondent  –  Bank  issued  a  circular  bearing  No.  176  dated  

18.10.2005.  Questioning the validity of the said circular, the appellant  No.  

1 filed a writ petition before the High Court contending that the same was  

contrary to the guidelines issued by the Reserve Bank of India insofar as the  

same  relates  to  the  scheme  for  one  time  settlement  for  the  Small  and  

Medium Enterprises.  A prayer was also made therein that the respondent –  

Bank be directed to settle the matter as per the RBI guidelines.  The said writ  

petition was dismissed only on the premise that the appellant No. 1 had not  

disclosed therein that it had already approached the Tribunal for recovery of  

the amount in question.   

7. A special leave petition filed thereagainst which was marked as SLP  

(C)  No.  21134  of  2006  was,  however,  dismissed  by  this  Court  on  

31.01.2007.

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8. Appellants approached the Appellate Tribunal in terms of Section 21  

of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993  

(for short “the 1993 Act”).  The appeal was entertained.  Respondent – Bank  

also preferred an appeal before the Appellate Tribunal claiming pendent lite  

and future interest at the rate of 16.50% with quarterly rests instead of 12%  

p.a. as had been granted  by the Tribunal in its order dated 23.11.2006.  The  

Appellate Tribunal by a judgment and order dated 13.04.2007, dismissed the  

appeal preferred by the respondent – Bank and allowed that of the appellants  

and the Performa Respondent Nos. 2 to 11 directing the respondent – Bank  

to make one time settlement in terms of the guidelines issued by the Reserve  

Bank of India as was prevailing at the relevant time.   

9. We  must,  however,  place  on  record  that  the  Appellate  Tribunal  

affirmed the judgment as also the validity of the recovery certificate dated  

23.11.2006.   

10. It furthermore permitted the appellants and the Proforma Respondent  

Nos. 2 to 11 to sell the secured properties for clearing the dues in terms of  

one  time settlement  scheme  and ordered  that  such an  exercise   must  be

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completed within a period of four months during which period the bank was  

restrained from taking any coercive steps against them.

11. Respondent  –  Bank  filed  writ  application  thereagainst  which  by  

reason  of  the  impugned judgment  has  been allowed.   Appellants  filed  a  

review application before the High Court which has been dismissed.   

12. Dr.  Abhishek  Manu  Singhvi,  learned  senior  counsel  appearing  on  

behalf of the appellants would contend that the scheme in relation to one  

time settlement having been issued by the Reserve Bank of India in exercise  

of its statutory power conferred upon it  under Section 21 of the Banking  

Regulation Act, 1949 (for short “the 1949 Act”), the impugned judgment  

cannot be sustained.

The learned counsel in this behalf has furthermore drawn our attention  

to various correspondences exchanged by and between the parties to urge  

that  the  respondent  –  Bank  entertained  the  said  application  asking  for  

proposal from the appellants and, thus, they are estopped and precluded from

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contending that the Board of Directors of the respondent – Bank themselves  

had made a scheme which was required to be followed.

13. Mr. I.P. Singh, learned counsel appearing on behalf of the respondent  

- Bank, on the other hand, urged:

(i) The Appellate Tribunal committed a serious illegality in issuing  

the  directions  upon the bank to undertake implementation  of  

scheme of one time settlement in terms of the guidelines issued  

by the Reserve Bank of India as no such prayer was made in the  

memo of appeal.

(ii) The respondent – Bank in law was entitled to make a deviation  

from the guidelines issued by the Reserve Bank of India.

(iii) Only in terms of the guidelines issued by the Board of Directors  

of the respondent – Bank the relaxation was to be granted to the  

extent  of  30% wherefor the extent  of the value of NPA was  

required to be considered and keeping in view of the fact that  

the amount available with the Bank was more than sufficient to

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wipe off the debts, the bank was not bound to accept the one  

time settlement.

(iv) The  Appellate  Tribunal  had  no  jurisdiction  to  declare  the  

guidelines issued by the bank to be a nullity particularly when  

no  such  case  was  made  out  in  the  memo of  appeal  nor  the  

appellants had pleaded the same.  The purpose and object for  

which the RBI guidelines were issued was for realization of the  

loan amount from chronic defaulters.

(v) The guidelines issued by the Reserve Bank of India were not in  

terms  of  Section  21  of  the  1949  Act  but  were  in  terms  of  

Section 35A thereof and, thus, the same was not binding on the  

banks.

14. The  Reserve  Bank  of  India  is  a  statutory  authority.   It  exercises  

supervisory power in the matter  of functionings of the Scheduled Banks.  

The matter relating to supervision of Scheduled Banks is also governed by  

the  Reserve  Bank  of  India  Act.   For  the  aforementioned  purpose,  the  

Reserve Bank is entitled to issue guidelines from time to time.  

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15. The Parliament also enacted the 1949 Act to consolidate and amend  

the law relating to banking.

Section  5(l)  of  the  1949 Act  defines  “Reserve  Bank” to  mean  the  

Reserve Bank of India constituted under Section 3 of the Reserve Bank of  

India Act, 1934.

By reason of various provisions of the 1949 Act, the Reserve Bank is  

empowered to control and supervise the functioning of the Scheduled Banks.  

The  1949  Act  also  provides  for  power  of  the  Reserve  Bank  to  control  

advances  by banking companies in  terms of  Section 21 of  the 1949 Act  

which reads as under:

“21 - Power of Reserve Bank to control advances  by banking companies  

(1) Where the Reserve Bank is satisfied that it is  necessary or expedient in the public interest or in  the interests of depositors or banking policy so to  do,  it  may  determine  the  policy  in  relation  to  advances  to  be  followed  by  banking  companies  generally or by any banking company in particular,  and when the policy has been so determined, all  banking  companies  or  the  banking  company  concerned, as the case may be, shall be bound to  follow the policy as so determined.

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(2)  Without  prejudice  to  the  generality  of  the  power  vested  in  the  Reserve  Bank  under  sub- section (1) the Reserve Bank may give directions  to banking companies,  either generally or to any  banking company or group of banking companies  in particular, as to-

(a) the purposes for which advances may or may  not be made,

(b)  the  margins  to  be  maintained  in  respect  of  secured advances,

(c)  the  maximum  amount  of  advances  or  other  financial accommodation which, having regard to  the  paid-up  capital,  reserves  and  deposits  of  a  banking  company  and  other  relevant  considerations,  may  be  made  by  that  banking  company to any one company, firm, association of  persons or individual,

(d)  the  maximum  amount  up  to  which,  having  regard to the considerations referred to in clause  (c),guarantees  may  be  given  by  a  banking  company  on  behalf  of  any  one  company,  firm,  association of persons or individual, and

(e)  the  rate  of  interest  and  other  terms  and  conditions  on  which  advances  or  other  financial  accommodation may be made or guarantees may  be given.

(3)  Every  banking  company  shall  be  bound  to  comply with any directions given to it under this  section.”

16. A bare perusal of the aforementioned provision would clearly show  

that the Reserve Bank of India is entitled to formulate the policies which the  

banking companies are bound to follow.  Sub-section (3) of Section 21 of

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the 1949 Act clearly mandates that every banking company shall be bound  

to comply with the directions given to it in terms thereof.  Section 35A of  

the 1949 Act, which was inserted by the Banking Companies (Amendment)  

Act, 1956, empowers the Reserve Bank to issue directions inter alia in the  

interest  of banking policy.   Section 36 of the 1949 Act also provides for  

further powers and functions of the Reserve Bank of India; clause (d) of  

Sub-section (1) whereof reads as under:

“36.  Further  powers  and  functions  of  Reserve  Bank – (1) The Reserve Bank may-

(a) *** *** ***

(b) *** *** ***

(c) *** *** ***

(d) at any time, if it is satisfied that in the public  interest or in the interest of banking policy or for  preventing  the  affairs  of  the  banking  company  being  conducted  in  a  manner  detrimental  to  the  interests of the banking company or its depositors  it is necessary so to do, by order in writing and on  such  terms  and  conditions  as  may  be  specified  therein-

(i) require the banking company to call a meeting  of its directors for the purpose of considering any  matter relating to or arising out of the affairs of the  banking  company;  or  require  an  officer  of  the  banking company to discuss any such matter with  an officer of the Reserve Bank;

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(ii) depute one or more of its officers to which the  proceedings  at  any  meeting  of  the  Board  of  directors  of  the  banking  company  or  of  any  committee or of any other body constituted by it;  require  the  banking  company  to  give  an  opportunity to the officers so deputed to be heard  at such meetings and also require such officers to  send a report of such proceedings to the Reserve  Bank;

(iii) require the Board of directors of the banking  company  or  any  committee  or  any  other  body  constituted by it to give in writing to any officer  specified by the Reserve Bank in this behalf at his  usual  address  all  notices  of,  and  other  communications  relating  to,  any  meeting  of  the  Board, committee or other body constituted by it;

(iv) appoint one or more of its officers to observe  the  manner  in  which  the  affairs  of  the  banking  company or  of  its  offices  or  branches  are  being  conducted and make a report thereon;

(v) require the banking company to make, within  such time as may be specified in the order, such  changes in the management as the Reserve Bank  may consider necessary.”

17. We may, however, place on record that the Parliament, in its wisdom,  

inserted Section 36A of the Act by the Banking Companies (Amendment)  

Act, 1959 in terms whereof some of the provisions of the 1949 Act were not  

to be applied to certain banking companies.  

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18. Indisputably, the guidelines were issued by the Reserve Bank of India  

by reason of a letter dated 3.09.2005 addressed to the Chairman/ Managing  

Director  of  all  public  sector  banks.   It  clearly  refers  to  a  circular  dated  

19.08.2005 issued by the Reserve Bank of India in terms whereof it  was  

directed that one time settlement scheme for recovery of NPA below Rs. 10  

crore  was  laid  down.   The  said  letter  was  issued  pursuant  to  the  

aforementioned circular in terms whereof one time settlement scheme was  

formulated for recovery of NPA below Rs. 10 crores.  It was categorically  

stated therein that the same was required to be implemented by all public  

sector  banks.   The  guidelines  issued  were  to  provide  a  simplified,  non-

discretionary and non-discriminatory mechanism therefor in SME sector.  It  

was  categorically  stated  that  all  public  sector  banks  shall  uniformly  

implement these guidelines.   

19. Respondent  –  Bank  concededly  is  a  public  sector  bank.   It  was,  

therefore, bound by the said guidelines.   

Salient features of the guidelines are as under:

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“(c) The  guidelines  will  cover  cases  on  which the banks have initiated action  under  the  Securitization  and  Reconstruction  of  Financial  Assets  and Enforcement of Security Interest  Act,  2002  and  also  cases  pending  before  Courts/DRTs/BIFR subject  to  consent  decree  being  obtained  from  the Courts/DRTs/BIFR”

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(ii) Settlement Formula amount

a) NPAs classified at Doubtful or Loss  as on March 31, 2004.

The minimum amount that should be  recovered  in  respect  of  compromise  settlement  of  NPAs  classified  as  doubtful or loss as on 31st March 2004  would  be  100%  of  the  outstanding  balance in the account as on the date  on which the account was categorized  as doubtful NPA.

b) NPAs classified as sub-standard as  on 31st March, 2004 which became  doubtful or loss subsequently:

The minimum amount that should be  recovered  in  respect  of  NPAs  classified  as  sub-standard  as  on  31st  March, 2004 which became doubtful  or loss subsequently would be 100%  of  the  outstanding  balance  in  the  account as on the date on which the  account  was  categorized  as  doubtful  NPAs plus  interest  at  existing  Basic  Prime  Lending  Rate  from  1st April,  2004 till the date of final payment.”

(iii) Payment

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The amount of settlement arrived at in  both  the  above  cases,  should  preferably be paid in one lump sum.  In  cases  where  the  borrowers  are  unable to pay the entire amount in one  lump sum, at least 25% of the amount  of  settlement  should be paid upfront  and  the  balance  amount  of  75%  should  be  recovered  in  installments  within a period of  one year  together  with  interest  at  the  existing  Prime  Lending  Rate  from  the  date  of  settlement  up  to  the  date  of  final  payment.

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(V) Non-discretionary treatment:

Banks  shall  follow  the  above  guidelines for one time settlement of  all  NPAs covered under the scheme,  without discrimination and a monthly  report  on the progress and details  of  settlement should be submitted by the  concerned authority  to the  next  high  authority  and  their  Central  Office.  Banks may go for wide publicity and  also give notice January 31, 2006 to  the  eligible  defaulting  borrowers  to  avail of the opportunity for one time  settlement of their outstanding dues in  terms of these guidelines.   Adequate  publicity  to  these  guidelines  through  various means must be ensured.

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4. Any  deviation  from  the  above  settlement  guidelines  for  any  borrower  shall  be made  only  by  the  Board of Directors.”

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The said circular letter was issued by the Chief General Manager of  

the Reserve Bank of India.  The High Court in its impugned judgment inter  

alia was of the opinion that he had no authority therefor.

20. Before, however, adverting to the question as to whether the Board of  

Directors of the respondent –Bank could deviate from the aforementioned  

guidelines  and,  if  so,  to  what  extent,  we  may  notice  the  following  

correspondences, which was exchanged by the parties hereto, so as to enable  

us to consider as to whether the respondent – Bank had itself applied the said  

guidelines in case of the appellants or not.

21. We may notice that the respondent – Bank appears to have accepted  

the  said guidelines  as  is  evident  from the letter  dated 24.11.2005 by the  

respondent Bank to the appellants in the following terms:

“As per head office guidelines, one time settlement  scheme  for  recovery  of  NPA  accounts  upto  10  crores  has  been  formulated.   Your  account  also  falls  within  this  scheme.   As the  said scheme is  Non-discretionary,  you  are  advised  to  come  forward for settlement of your account as per terms  & conditions of the scheme”

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Clauses 4.1 and 4.2 read as under:

“4.1 NPAs classified as Doubtful or Loss as on  31st March 2004:

The  minimum  amount  that  should  be  recovered in respect of compromise settlement of  NPAs  classified  as  doubtful  or  loss  as  on  31st  March,  2004 would be 100% of  the  outstanding  balance in the account as on the date on which the  account was categorized as doubtful NPA.

4.2 NPAs classified as sub-standard as on 31st  March,  2004  which  became  doubtful  or  loss  subsequently:

The minimum amount that should be recovered in  respect  of NPAs classified as sub-standard as on  31st March,  2004 which became doubtful  or  loss  subsequently  would  be  100% of  the  outstanding  balance in the account as on the date on which the  account  was  categorized  as  doubtful  NPAs  plus  interest at existing Basic Prime Lending Rate from  1st April, 2004 till the date of final payment.”

Under the heading “Non-Discretionary Treatment”, the bank stated:

“7.1 RBI  has  advised  that  the  guidelines  for  compromise settlement of NPAs in SME sector are  non-discretionary  and  non-discriminatory.  Therefore,  if  the  borrower  fulfills  the  eligibility  criteria  for  consideration  of  OTS  under  these  guidelines then amount of OTS will be determined  strictly  in terms of Clause No.4.1 and 4.2 above  irrespective of any other factor.”

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22. Furthermore,  the  respondent  –  Bank  in  its  letter  dated  1.12.2005,  

stated:

“Please  refer  our  letter  regarding  the  above  mentioned  policy  of  R.B.I.   We  are  again  enclosing  herewith  the  photocopy  of  the  policy.  You are requested to come forward as per policy  for settlement of the account at your earliest.”

The respondent – Bank yet again in its letter dated 01.03.2006, stated:

“This  is  in  continuation  of  our  letter  dated  17.02.2006 on the above subject.  Please note the  OTS scheme of RBI is valid upto 31.03.2006 as  such please send your request well within the last  date  so  that  the  proposal  may  be  put  up  to  the  competent authority.”

23. It  is  on  the  aforementioned  premise,  the  merit  and  purport  of  the  

correspondences exchanged between the parties must be considered.  The  

said correspondences clearly show that the respondent – Bank had resorted  

to the guidelines issued by the Reserve Bank of India alone and pursuant to  

or in furtherance of the offer made by the bank, a proposal came to be made  

by the appellants in terms of its letter dated 2.03.2006; the relevant portion  

whereof reads as under:

“2. As  per  RBI  guidelines,  the  minimum  amount that shall  be recovered in respect of one

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time settlement of NPAs classified as doubtful of  loss  as  on march  31,  2004 will  be 100% of the  outstanding balance in the account as on the date  on which the account was categorized as doubtful  NPA.  As the outstanding balance in our account  as  on  March  31,  2004  was  Rs.285.38  lacs,  the  settlement  amount  in  respect  on  one  time  settlement  of  our  account  works  out  to  be  Rs.283.38 lacs as per RBI guidelines, out of which  we have already deposited a sum of Rs.26.76 lacs  (including  Rs.25.00  lacs  in  Third  Party  No  lien  account  subject  to  the  condition  that  the  said  amount  shall  be  appropriated  by  the  bank  only  after approval of compromise proposal submitted  by us plus Rs.1.76 lacs in instalments).  Hence we  are unable to understand how you have worked out  the minimum recoverable amount to be Rs.370.49  lacs.

3. RBI  guidelines  on  OTS  for  SME account  nowhere links the amount that shall be recovered  with the fair market value of the security charged  to the bank.  The fair market value of security is  just  an  assessment  of  the  market  value  of  the  security and not the actual value of the security.

4. RBI guidelines are very clear for one time  settlement  of  dues  for  SME  accounts  with  outstanding of Rs.10.00 crore or less before March  31, 2004, that those account should be settled at  principal amount.

5. NPAs  classified  as  doubtful  as  on  March  2004  are  settling  their  accounts  as  per  these  guidelines.  We also seek justice and deserve the  right  to  settle  our  account  strictly  as  per  RBI  guidelines,  which are non-discretionary  and non- discriminatory  in  nature.   Its  worth  while  to  mention  here  that  other  nationalized  bank  in  country  are  settling  NPAs  as  per  guidelines  of  RBI.

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However,  to  avoid  any  further  litigations  and to  show our sincere intentions to settle the account,  we are even ready to pay the interest for 2 years, as  per your instructions and categorization, upto the  time  when  the  account  was  first  categorized  as  “doubtful” by bank.

Therefore, we request you to consider our proposal  for  one  time  settlement  at  Rs.345.31.   The  proposed  amount  of  Rs.345.31  lacs  has  been  arrived at as the amount which would have been  outstanding in our account on the date when our  account  was  categorized  “doubtful”  for  the  first  time,  i.e.,  by adding interest  for  2  years  at  PLR  Rs.59.93  lacs  on  the  amount  of  Rs.285.38  lacs  which was outstanding  in  our  account  as  on the  date  when  our  account  was  categorized  as  non  performing asset.”

24. Such a proposal was made bona fide.  It was within the framework of  

the guidelines issued by the Reserve Bank of India.

25. It  is  not  necessary  to  place  on  record  the  further  correspondences  

exchanged between the parties although our attention has been drawn thereto  

in terms whereof the appellants had all along been making sincere efforts to  

one time settlement within the parameters of the guidelines issued by the  

Reserve Bank of India.

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26. It  may  be  true  that  the  appellants  filed  a  writ  petition  before  the  

Punjab  and Haryana  High Court  which  was dismissed  on  the  ground of  

suppression.   

In Arunima Baruah v. Union of India and Ors. [(2007) 6 SCC 120] the  

question involved was how far and to what extent suppression of fact by way  

of non- disclosure would affect a person's right of access to justice which is  

a human right.

It was held:  

“21.  Ubi  jus  ibi  remedium  is  a  well-known  concept. The court while refusing to grant a relief  to a person who comes with a genuine grievance in  an arguable case should be given a hearing. (See  Bhagubhai  Dhanabhai  Khalasi.)  In  this  case,  however, the appellant had suppressed a material  fact.  It  is evident that the writ  petition was filed  only  when  no  order  of  interim  injunction  was  passed.  It  was  obligatory  on  the  part  of  the  appellant to disclose the said fact.

22. In this case, however, suppression of filing  of the suit is no longer a material fact. The learned  Single Judge and the Division Bench of the High  Court may be correct that, in a case of this nature,  the  Court’s  jurisdiction  may  not  be  invoked  but  that  would  not  mean  that  another  writ  petition  would not lie. When another writ petition is filed  disclosing  all  the  facts,  the  appellant  would  be

22

approaching  the  writ  court  with  a  pair  of  clean  hands, and the Court at that point of time will be  entitled  to  determine  the  case  on  merits  having  regard to the human right of the appellant to access  to justice, and keeping in view the fact that judicial  review  is  a  basic  feature  of  the  Constitution  of  India.”

It was opined:

“12. It is trite law that so as to enable the court  to refuse to exercise its  discretionary jurisdiction  suppression must be of material fact. What would  be  a  material  fact,  suppression  whereof  would  disentitle  the  appellant  to  obtain  a  discretionary  relief,  would  depend  upon  the  facts  and  circumstances  of  each  case.  Material  fact  would  mean material for the purpose of determination of  the lis, the logical corollary whereof would be that  whether the same was material for grant or denial  of the relief. If the fact suppressed is not material  for determination of the lis between the parties, the  court may not refuse to exercise its discretionary  jurisdiction. It is also trite that a person invoking  the discretionary jurisdiction of the court cannot be  allowed to approach it with a pair of dirty hands.  But even if the said dirt is removed and the hands  become  clean,  whether  the  relief  would  still  be  denied is the question.”

[See also  S.J.S. Business Enterprises (P) Ltd. v.  State of Bihar and  

Others (2004) 7 SCC 166]

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27. The  said  order  of  the  Punjab  and  Haryana  High  Court  dated  

21.11.2006 again indisputably has been affirmed by this Court.  But, in our  

opinion, the same by itself did not preclude the appellants to approach the  

Appellate Tribunal.  The jurisdiction of the appellate tribunal is co-extensive  

with the powers of the Tribunal.  The memo of appeal filed by the appellants  

before the Tribunal clearly shows that  the contentions with regard to the  

enforcement of the aforementioned provisions had been made therein.

28. It is, therefore, not correct to contend that no pleadings were made for  

the  purpose  of  enforcing  the  RBI  guidelines  in  respect  of  one  time  

settlement.   

29. It  may  be  that  no  specific  prayer  was  made  but  the  same,  in  our  

opinion, keeping in view the provisions of the 2002 Act, did not preclude the  

Appellate Tribunal to consider the offer of the appellants.  The Appellate  

Tribunal in terms of the provisions of the Act like the original Tribunal is  

interested  only  in  recovery  of  the  amount.   While  doing  so,  it,  in  our  

considered opinion, has the requisite jurisdiction to consider the prayer made  

by a debtor for one time settlement particularly in view of the fact that the  

same is within the purview of One Time Settlement Scheme of the Reserve

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Bank of India.  If a public sector bank is otherwise bound by any guidelines  

issued by the Reserve Bank of India, we see no reason as to why the same  

cannot be enforced in terms of the provisions of the Act by the Tribunal and  

consequently by the Appellate Tribunal.  It is not a case where the appellants  

had  prayed for  quashing of  a  policy  decision  taken by the  respondent  –  

Bank.   The  question  which  arose  for  consideration  before  the  Appellate  

Tribunal as also before the High Court was as to whether offer having been  

made by the bank to the appellants herein, it could have turned around and  

contend that only because the appellants had furnished security to the extent  

of Rs. 11 crores, the same by itself  would entitle it to take recourse to a  

discriminatory treatment.  The answer to the said question must be rendered  

in the negative.   

30. We may notice that the offer made by the appellants in terms of the  

RBI  guidelines  for  one  time  settlement  was  Rs.  3,45,31,000/-,  however,  

keeping in view the fact that the respondent – Bank had a better security  

available to it demanded a sum of Rs. 4.92 crores.   

31. The Board of Directors of the Bank itself had accepted the guidelines.  

It, however, in its own guidelines, stated:

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“II.3 After calculation of the MRA as per point II.1  and  II.2  above,  due  consideration  to  Securities  available charged in the case is to be given, in case  of secured and partially secured assets.   In these  accounts, MRA is to be calculated as under:

MRA  =  70%  of  the  value  of  securities  as  per  valuation  certificate,  issued  in  terms  of  Law  Circular No. 171.”

32. Does it satisfy the non-discriminatory clause laid down by the Reserve  

Bank of India and accepted by the Reserve Bank is the question.  While  

making a deviation, the Board of Directors of a public sector bank could not  

have  taken recourse  to  a  policy  decision  which is  per  se  discriminatory.  

Respondent  –  Bank is  a  ‘State’  within  the  meaning of  Article  12 of  the  

Constitution  of  India  apart  from the  fact  that  it  is  bound  to  follow  the  

guidelines issued by the Reserve Bank of India.

33. If,  therefore,  the broad policy decisions contained in the guidelines  

were required to be followed, the power of the Board of Directors to make  

deviation in terms of Clause 4 thereof would only be in relation to some  

minor matters which does not touch the broad aspects of the policy decision  

and in particular the one governing the non-discriminatory treatment.  In a  

case of this nature, we are satisfied that the respondent – Bank is guilty of

26

violation  of  the  equality  clause  contained  in  the  Reserve  Bank  of  India  

guidelines as also Article 14 of the Constitution of India.   

34. The fact that the appellants were defaultors is not in dispute.  It is also  

not in dispute that it comes within the purview of the Small and Medium  

Enterprises sector.   

35. It is furthermore not in dispute that the respondent – Bank itself had  

made  an  offer  to  accept  the  proposal  of  the  appellants  in  regard  to  

enforcement  of  one  time  settlement  pursuant  to  the  RBI  guidelines.  

Indisputably, it was all along aware that the amount of securities was lying  

with it.   It is only pursuant thereto the directions had been issued by the  

Tribunal

36. The question as to whether the guidelines issued by the Reserve Bank  

of India are binding or not now stands concluded by reason of a Constitution  

Bench Judgment  of this  Court  in  Central  Bank of  India v.  Ravindra and  

Others [(2002) 1 SCC 367] in the following terms:

“55… (5) The power conferred by Sections 21  and 35-A of the Banking Regulation Act, 1949 is

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coupled  with  duty  to  act.  The  Reserve  Bank  of  India  is  the  prime  banking  institution  of  the  country  entrusted  with  a  supervisory  role  over  banking and conferred with the authority of issuing  binding  directions,  having  statutory  force,  in  the  interest  of  the  public  in  general  and  preventing  banking affairs from deterioration and prejudice as  also  to  secure  the  proper  management  of  any  banking company generally. The Reserve Bank of  India  is  one  of  the  watchdogs  of  finance  and  economy of the nation. It  is,  and it  ought to be,  aware  of  all  relevant  factors,  including  credit  conditions  as  prevailing,  which  would  invite  its  policy  decisions.  RBI  has  been  issuing  directions/circulars from time to time which, inter  alia,  deal  with  the  rate  of  interest  which can  be  charged and the periods at the end of which rests  can be struck down, interest calculated thereon and  charged and capitalised. It should continue to issue  such directives. Its circulars shall bind those who  fall  within  the  net  of  such  directives.  For  such  transaction  which  are  not  squarely  governed  by  such circulars, the RBI directives may be treated as  standards for the purpose of deciding whether the  interest charged is excessive, usurious or opposed  to public policy.”

37. Yet again in Corporation Bank v. D.S. Gowda and Another [(1994) 5  

SCC 213], this Court held:

“17…As pointed out earlier, under the Banking  Regulation Act wide powers are conferred on the  Reserve  Bank  to  enable  it  to  exercise  effective  control  over  all  banks.  Sections  21  and  35-A  enable  it  to  issue  directives  in  public  interest  to  regulate  the  charging  of  interest  on  loans  or  advances made from time to time…”

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38. We may, however, notice that a Division Bench of this Court without  

noticing the decision of the Constitution Bench in  Central  Bank of India  

(supra)  in  Oriental  Bank  of  Commerce v.  Sunder  Lal  Jain  and  Another  

[(2008) 2 SCC 280] opined as under:

“8. A perusal of the aforesaid revised guidelines  issued by Reserve Bank of India on 29-1-2003 for  compromise settlement of chronic non-performing  assets  (NPAs)  of  public  sector  banks  will  show  that  the  same  will  be  applicable  and  will  cover  NPAs classified  as  substandard  as  on  31-3-2000  which have subsequently become doubtful or loss.  The revised guidelines have no application where  the NPAs have not been classified as substandard  as  on  31-3-2000.  It  is  not  in  dispute  that  the  account  of  the  respondents  was  a  performing  account  between  1-4-2000  and  31-3-2001.  According to the records of the Bank, the account  was  consigned  to  protest  bill  account  on  15-10- 2001 and was declared as NPA as per prudential  norms  of  RBI  on  31-3-2001.  The  respondents  contested the case before DRT and did not admit  their  liability.  No such plea was raised that their  account had become NPA as on 31-3-2000 before  DRT. Therefore, the revised guidelines issued by  Reserve  Bank  of  India  on  29-1-2003  for  compromise settlement of chronic non-performing  assets (NPAs) of public sector banks were not at  all applicable to the facts and circumstances of the  case and no direction could be issued to declare the  respondents’ account as NPA from 31-3-2000.”

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39. Judicial discipline mandates the bench comprising of two Judges to  

follow the judgments of the Constitution Bench having regard to Article 141  

of the Constitution of India.

40. If in terms of the guidelines issued by the Reserve Bank of India a  

right  is  created  in  a  borrower,  we  see  no  reason  as  to  why  a  writ  of  

mandamus could not be issued.  We would assume, as has been contended  

by  Mr.  Singh,  that  while  exercising  its  power  under  Article  226  of  the  

Constitution of India, the High Courts may or may not issue such a direction  

but the same, in our opinion, by itself, would not mean that the High Court  

would  be  correct  in  interfering  with  an  order  passed  by  the  Appellate  

Tribunal  which  was  entitled  to  consider  the  effect  of  such  one  time  

settlement.

41. The question pertaining to the present matter is regarding whether or  

not a circular issued by a statutory body for the governance and regulation of  

certain agreements confers a legal right upon the aggrieved party in case of  

non-compliance or complete and absolute deviation from the said guidelines  

by the body formulating such circulars. Alternately, can the aggrieved party,  

then, claim its right of judicial review under Article 32 or 226 to quash the

30

said circular in case of discriminatory application of such rules/guidelines so  

mentioned in the circular.

42. In Union of India and Anr. v. Azadi Bachao Andolan and Anr [(2004)  

10 SCC 1], it was held that a circular issued by the Central Board of Direct  

Taxes(CBDT) was not inconsistent with the provisions of the Income-Tax  

Act and was valid and efficacious.  The assessing officers chose to ignore  

the guidelines and hence the CBDT was justified in issuing “appropriate  

guidelines” under Circular No. 789.  The said Circular does not in any way  

crib, confine or cabin the powers of the assessing officers with regard to any  

particular assessment. It merely formulates broad guidelines to be applied in  

the matter of assessment of the assesses covered by the provisions of the  

Indo – Mauritius Double Taxation Avoidance Convention, 1983.

43. In  Commissioner of Income Tax v.  Anjum M.H. Ghaswala and Ors.  

[(2002) 1 SCC 633],  it was pointed out that the circulars issued by CBDT  

under Section 119 of the Income Tax Act have statutory force and would be  

binding on every income-tax authority although such may not be the case  

with  regard  to  press  releases  issue  by  the  CBDT for  information  of  the  

public.

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44. In UCO Bank v. CIT [(1999) 4 SCC 599], this Court opined that “the  

circulars as contemplated therein cannot be adverse to the assessee.”  Thus,  

the authority which wields the power for its own advantage when required to  

wield it in a manner it considers just by relaxing the rigour of the law or in  

other permissible manners as laid down in Section 119. The power is given  

for  the  purpose of  just,  proper  and efficient  management  of  the work of  

assessment and in public interest.  

45. In BSNL & anr. v. BPL Mobile Cellur Ltd. & ors. [2008 (8) SCALE  

106], it was held that “the direction contained in the said circular letters are  

relevant for the officers who are authorised not only to grant licenses but  

also enter  into contracts  and prepare bills.  The circular  letters  having no  

statutory force undoubtedly would not govern the contract”.

A distinction, thus, must be made between statutory and non-statutory  

guidelines.  A distinction must also be made between the circular which are  

relevant but not binding on the third parties  and which are imperative in  

character.  

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46. As regards the Reserve Bank of India guidelines, it was the direction  

of the Appellate Tribunal that the Respondent-Bank should settle the case of  

the appellants under the RBI guidelines through a One Time Settlement and  

should invite a proposal for settlement and recovery of the agreed amount.

47. The Appellate  Tribunal  in passing its  order  followed the dicta laid  

down in  Constitution  Bench  judgment  in  Central  Bank  of  India (supra),  

wherein it was held that:

“.....RBI directive have not only statutory flavour,  any  contravention  thereof  or  any  default  in  compliance  therewith  is  punishable  under  sub- section (4) of S. 46 of the Banking Regulation Act,  1949”.  

48. We, therefore, are of the opinion that the impugned judgment cannot  

be  sustained.   It  is  set  aside  accordingly.   The  appeals  are  allowed.  

However, in the facts and circumstances of the case, there shall be no order  

as to costs.

……………………………….J. [S.B. Sinha]

..…………………………..…J.     [Deepak Verma]

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New Delhi; July 31, 2009