Dismissed

Parthas Textiles v. the Reserve Bank of India

Kerala HC10 Mar 2021WP(C)/3942/2021

Case brief

AI extract

What is this about?

Petitioner sought direction to bank to extend Emergency Credit Line Guarantee Scheme facilities against loans with another lender. The High Court held that extending such additional credit is a matter of commercial prudence and discretion for the bank, and the writ court could not compel the unwilling bank to grant the facilities.

What did the court decide?

Writ petition dismissed; bank's decision to not extend additional credit facilities under ECLGS upheld.

Parthas Textiles Vs the Reserve Bank of India — Contract and Commercial Disputes | Kerala HC (2021)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR.JUSTICE N.NAGARESH

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WEDNESDAY, THE 10TH DAY OF MARCH 2021/ 19TH PHALGUNA, 1942

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WP(C).No.3942 OF 2021(P)

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PETITIONER:

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PARTHAS TEXTILES, P.B.NO.1774, M.G.ROAD, JOSE JUNCTION, ERNAKULAM - 682 016 REPRESENTED BY ITS MANAGING PARTNER, PRAVEEN RAJ RAJENDRAN.

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BY ADV. SRI.C.AJITH KUMAR

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RESPONDENTS:

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1 THE RESERVE BANK OF INDIA, 21ST FLOOR, CENTRAL OFFICE BUILDING, SHAHID BHAGAT SINGH ROAD, MUMBAI - 400 001, REPRESENTED BY ITS CHIEF GENERAL MANAGER.

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2 THE SOUTH INDIA BANK LTD. MARKET ROAD BRANCH, ERNAKULAM, REPRESENTED BY ITS CHIEF MANAGER.

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3 THE SOUTH INDIA BANK LTD., CREDIT DEPARTMENT (SANCTIONS), H.O.THRISSUR, REPRESENTED BY ITS CHIEF MANAGER.

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4 THE DEWAN HOUSING FINANCE CORPORATION LTD., 1ST FLOOR, K.M.M.BUILDING, NEAR HOTEL RENIASSANCE, PALARIVATTOM, KOCHI – 682 025, REPRESENTED BY BRANCH MANAGER.

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5 NATIONAL CREDIT GUARANTEE TRUSTEE COMPANY LTD., SWAVALAMBAN BHAVAN, C-11, G-BLOCK, BANDRA-KURIA COMPLEX, BANDRA EAST, MUMBAI - 400 051, REPRESENTED BY ITS COMPANY SECRETARY.

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R1 BY SRI.MILLU DANDAPANI,SC R2-R3 BY ADV. SRI.SUNIL SHANKER R2-R3 BY ADV. SMT.K.ARUNDHATHI R4 BY ADV. SRI.DENU JOSEPH R4 BY ADV. SHRI.BIBIN BABU SRI P.VIJAYAKUMAR ASGI

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THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 10.03.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

WP(C)No.3942/2021

C.R.

JUDGMENT

Dated this the 10^th day of March, 2021

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The petitioner is before this Court seeking to reconsider the request made by the petitioner in Ext.P4 application and to direct respondents 2 and 3 to provide request letter to the 4^th respondent for issuing 'No Objection Certificate' for lending of Emergency Credit Line Guarantee Scheme (ECLGS) for the proportionate 20% of credit facilities availed by the petitioner from the 4^th respondent, as per Ext.P1 scheme. The petitioner has sought for a further direction to 2^nd and 3^rd respondents to extend Ext.P1 Emergency Credit Line Guarantee Scheme to the petitioner, by providing a pre-approved loan upto 20% of the loan outstanding as on 29.02.2020, with respect to the financial facilities enjoyed by the petitioner with the 4^th respondent.

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WP(C)No.3942/2021

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The pleadings in the writ petition would show that the petitioner has applied for the benefit under Ext.P1 Emergency Credit Line Guarantee Scheme (ECLGS) from the 2^nd respondent. The petitioner is a customer of the 2^nd respondent-Bank. It is an admitted position that the 2^nd respondent has already granted credit facility of 20% of the outstanding loan amount, to the petitioner in the light of Ext.P1 Scheme.

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The case of the petitioner is that the petitioner has credit facilities with the 4^th respondent Financial Institution also and in the light of Ext.P1 Scheme, in case a borrower wishes to take from any particular lender an amount of more than the proportional 20% of the outstanding credit that the borrower has with that particular lender, a 'No Objection Certificate' would be required from such lender whose share of ECLGS loan is being proposed to be taken from the particular lender. What the petitioner seeks from the 2^nd respondent is additional 20% loan

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WP(C)No.3942/2021

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amount under the ECLGS, in respect of the credit facility maintained by the petitioner with the 4^th respondent Financial Institution.

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When the 2^nd respondent did not positively respond to the said request, the petitioner filed WP(C) No. 27356/2020. This Court after hearing the parties, ordered that the petitioner would be free to approach the 4^th respondent and directed the 4^th respondent to consider the application for NOC which would be submitted by the petitioner. The 2^nd respondent was directed to reconsider the request made by the petitioner in Ext.P7 application, taking note of Clause 15 of Ext.P2 Scheme. The 2^nd respondent herein considered the request of the petitioner in compliance of the said Ext.P6 judgment of this Court.

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The 2^nd respondent declined additional 20% financial aid. The 2^nd respondent held that though Clause 13 of Ext.P1 Scheme provides 100% guarantee given by the 5^th respondent-National Credit Guarantee Trustee

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WP(C)No.3942/2021

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Company Ltd. as per Clause 15 of the Scheme, in the event of invocation of guarantee by the Bank, only 75% will be paid upfront and the remaining 25% will be paid only on conclusion of recovery proceedings or decree getting time barred, which would naturally take years. Therefore, the Bank will have to make provision for the 25% till conclusion of the proceedings and it will be a hit to the balance sheet of the Bank. On this consideration, the 2^nd respondent declined the request of the petitioner.

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The learned counsel for the petitioner submits that the 2^nd respondent need not worry about any loss being caused due to an additional facility sought for because the repayment of the same is guaranteed by the 5^th respondentNational Credit Guarantee Trustee Company Ltd. Therefore the 2^nd respondent is not going to incur any financial liability whatsoever.

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The learned counsel for the petitioner argues that Ext.P1 Scheme has been framed by the authorities in order

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WP(C)No.3942/2021

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to extend genuine help to business concerns in the COVID 19 pandemic situation. The petitioner was bank's customer for the last so many years. Till 29.02.2020, the petitioner has not committed any default whatsoever in respect of repayment either to the 2^nd respondent Bank or to the 4^th respondent Financial Institution. As the credit dealings of the petitioner is beyond doubt, there is no reason whatsoever for the 2^nd respondent to decline the request.

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The learned counsel for the petitioner submitted that the credit facility being a part of a Scheme provided by the National Credit Guarantee Trustee Company Ltd., the 2^nd respondent has no discretion in these matters, in respect

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of the specific provisions contained in Ext.P1 Scheme. Ext.P7 communication of the 2^nd respondent does not disclose exercise of that discretion in proper manner. As the petitioner is eligible and entitled to additional 20% credit facility from the 2^nd respondent, the 2^nd respondent is liable to pay the same to the petitioner.

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WP(C)No.3942/2021

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The learned Standing Counsel for the 1^st respondent-RBI would submit that the 1^st respondent is not at all a necessary party to the writ petition and has been dragged into the litigation without any reason.

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Heard the learned counsel for the petitioner, the learned Standing Counsel for the 1^st respondent and the learned Standing Counsel appearing for respondents 2 and 3. I have also heard the learned ASGI appearing for the 5^th respondent-National Credit Guarantee Trustee Company Ltd.

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The case of the petitioner is that the 2^nd respondent is bound to provide additional credit facility to the extent of 20% in respect of the loan outstanding of the petitioner with the 4^th respondent Financial Institution under Clause 15 of Ext.P11 Scheme. It is to be noted that the 2^nd respondent has already extended credit facility to the tune of 20% in respect of the accounts maintained by the petitioner with them. The contention of the petitioner in the

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WP(C)No.3942/2021

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instant writ petition is that the 2^nd respondent is responsible for providing additional credit facility in respect of the loan accounts maintained by the petitioner with the 4^th respondent Financial Institution.

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This Court considered the said claim of the petitioner in WP(C) No. 27356/2020 filed by the petitioner. This Court in paragraph 11 of Ext.P6 judgment held that the 2^nd respondent cannot be compelled to extend the benefit sought for by the petitioner. In paragraph 10 also, this Court held that for extension of said facility in respect of the 4^th respondent, it would be necessary for the specific lender (the 2^nd respondent) to agree to provide ECLGS facility on behalf of other lenders. In this case, the 2^nd respondent has to agree for the same. The 2^nd respondent obviously, has not agreed.

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The contention of the learned counsel for the petitioner is that when this Court directed the 2^nd respondent to reconsider the issue, the 2^nd respondent should have

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exercised its discretion in a just and proper manner and agreed for the same. The learned counsel for the petitioner further pointed out that this Court had directed that a decision shall be taken under Clause 15 of Ext.R2(a) Scheme.

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The petitioner seeks the benefit as provided under Clause 8 of Ext.P1 scheme. The relevant provisions in Ext.P1 are as follows:

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• “In case a borrower has existing limits with multiple lenders, GECL may be availed either through one lender or multiple lenders depending upon the agreement between the borrower and the MLI.

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• In case the borrower wishes to take from any lender an amount more the proportional 20% of the outstanding credit that the borrower has with that particular lender, a No Objection Certificate (NOC) would be required from such lenders whose share of ECLGS loan is being proposed to be taken from the specific lender. However, it would be necessary for the specific lender to agree to provide ECLGS facility on behalf of such of the lenders”. (underline supplied)

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The provision would make it clear that it would be necessary for the specific lender to agree to provide ECLGS facility on behalf of other lenders.

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The duty and discretion cast upon the 2^nd respondent-Bank under Ext.P1 Scheme, is one to be exercised applying prudent business principles and commercial practices. The said duty and discretion cannot be equated with one exercised by State and its instrumentalities under Administrative law. The issue is purely within the realm of contract. In the case of the petitioner, the 2^nd respondent considered the application and decided not to extend the additional facilities to the petitioner.

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The 2^nd respondent has considered the risk the Bank will be put to if such additional facility is extended to the petitioner. This is a decision which the 2^nd respondent is entitled to take on prudent business principles. This Court in exercise of the power under Article 226 of the Constitution

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cannot direct the unwilling 2^nd respondent to extend such additional credit facilities to the petitioner in respect of the accounts maintained by him with the 4^th respondent.

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In the circumstances, the writ petition is found devoid

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of merits and it is hence dismissed.

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Sd/- N. NAGARESH JUDGE

ncd/10.03.2021

APPENDIX

PETITIONER'S EXHIBITS:

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EXHIBIT P1	TRUE COPY	OF THE	EMERGENCY CREDIT LINE
	GUARANTEE OPERATIONA OF THE 5TH	SCHEME L GUIDE RESPON	(ECLGS)-MODIFICATION ON LINES DATED 26/11/2020 DENT.
EXHIBIT P2	TRUE COPY	OF	THE FREQUENTLY ASKED
	QUESTION THE 5TH RE	(FAQ) T SPONDEN	O EXT.P1 PUBLISHED BY T.
EXHIBIT P3	TRUE COPY SENT BY PETITIONER	OF THE 4TH .	E-MAIL DATED 27/09/2020 RESPONDENT TO THE
EXHIBIT P4	TRUE COPY SUBMITTED RESPONDENT	OF THE BY P , FOR P	LETTER DATED 12/10/2020 ETITIONER TO THE 2ND ROVIDING EXT.P1 SCHEME.
EXHIBIT P5	TRUE COPY	OF THE	LETTER DATED 20/10/2020
	ISSUED B PETITIONER	Y 2ND .	RESPONDENT TO THE
EXHIBIT P6	TRUE COP 27/01/2021	Y OF IN WP(	THE JUDGMENT DATED C) NO.27356/2020.
EXHIBIT P7	TRUE COPY	OF THE	LETTER DATED 04/02/2021
	ISSUED B PETITIONER	Y 3RD .	RESPONDENT TO THE

Parthas Textiles v. the Reserve Bank of India

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Parthas Textiles v. the Reserve Bank of India

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