Gujarat High Court
Super Spintex Private Limited Through ... vs Punjab National Bank on 29 January, 2020
Author: A.Y. Kogje
Bench: A.Y. Kogje
C/SCA/22356/2019 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 22356 of 2019
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE A.Y. KOGJE Sd/-
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1 Whether Reporters of Local Papers may be allowed to see the No
judgment ?
2 To be referred to the Reporter or not ? No
3 Whether their Lordships wish to see the fair copy of the No
judgment ?
4 Whether this case involves a substantial question of law as to No
the interpretation of the Constitution of India or any order made
thereunder ?
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SUPER SPINTEX PRIVATE LIMITED THROUGH DIRECTOR, SURESH
GANGDAS KACHADIYA
Versus
PUNJAB NATIONAL BANK
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Appearance:
MR RS SANJANWALA, SENIOR COUNSEL with MS AMRITA A
PATEL(7534) for the Petitioner(s) No. 1
KUNTAL A PARIKH(7757) for the Petitioner(s) No. 1
BHASKAR SHARMA(9209) for the Respondent(s) No. 3
MR DK NAKRANI(500) for the Respondent(s) No. 4
MR PRANAV G DESAI(290) for the Respondent(s) No. 2
MR. VN. SEVAK(3791) for the Respondent(s) No. 1
MS KAUSHAL D NAKRANI(5121) for the Respondent(s) No. 4
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CORAM: HONOURABLE MR.JUSTICE A.Y. KOGJE
Date : 29/01/2020
ORAL JUDGMENT
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1. RULE. Learned Advocate Mr. Kuntal Parikh waives service of notice of Rule on behalf of the respondent No.1 - Punjab National Bank, learned Advocate Mr. Pranav G. Desai waives service of notice of Rule on behalf of the respondent No.2 - Andhra Bank, learned Advocate Mr. Bhaskar Sharma waives service of notice of Rule on behalf of the respondent No.3 - Dena Bank and learned Advocate Mr. Kaushal D. Nakrani waives service of notice of Rule on behalf of the respondent No.4 - Indian Bank.
2. This petition under Article 226 of the Constitution of India is filed seeking direction to the respondent No.1 seeking direction to the respondent No.1 to release the collateral security of the petitioner created by deposit of title deeds without demanding prepayment charges / foreclosure charges and to issue 'No Objection Certificate' in favour of AXIS Bank and HDFC Bank who had taken over the credit facilities. Consequentially, relief is prayed for setting aside the communication dated 07.11.2019, 20.11.2019 and 19.10.2019 demanding prepayment charges / foreclosure charges.
3. It is the case of the petitioner that the petitioner had availed credit facilities in the form of funding of projects jointly by Page 2 of 25 Downloaded on : Fri Jan 31 21:13:27 IST 2020 C/SCA/22356/2019 JUDGMENT the Consortium of the respondents No.1, 2, 3 and 4 - Bank, the respondent No.1 being the lead Bank.
4. It is submitted that the total funds sanctioned by the Consortium was of Rs.135 Crores which was in the forum of term loan, cash credit facilities and non-fund based facilities. It is the case of the petitioner that after sanctioning of the facilities by the Consortium in the year 2017, the collateral security was offered to secure such facilities. It is the case of the petitioner that from the beginning, the petitioner had brought to the notice of the consortium, the excessive rate of interest as compared to the rate of interest which was offered in the Sector and therefore, requested the respondents to take a decision with regard to applying of such higher rate of interest, higher process fees and bringing it to the level which is applicable in the market. This point was raised by the petitioner in the very first meeting of the Consortium. It was also requested that considering the higher amount of loan, a period of 8 years be fixed as against 5 years. On both the issues, the respondent Banks assured the petitioner that appropriate decision would be taken by the higher authorities. In expectation, the petitioner had also addressed a communication. It is submitted that as per the terms of the Bank, the collateral security coverage to the extent of 52% of the credit facility was to be submitted before Page 3 of 25 Downloaded on : Fri Jan 31 21:13:27 IST 2020 C/SCA/22356/2019 JUDGMENT the disbursement of the funds and hence, the petitioner had created a charge on its various immovable properties worth Rs.72.76 Crores. It is submitted that the petitioner had also given an additional security in the form of LIC Policies worth Rs.8.82 Crores only with an object to receive competitive rate of interest. The charge was created by a communication dated 26.05.2017 by which the Policies worth Rs.8.82 Crores were charged. The details of the policy are as under :-
Policy Holder Name No. Policy No. Sum
Patel Maheshbhai 1 810374680 30000
2 810389291 1300000
3 810390725 800000
4 813241462 1400000
5 813241463 1100000
6 813261889 10000000
7 813296606 20000000
Patel Ashaben M Policy No. Sum
1 810389342 1300000
2 810389903 1000000
3 813240787 1400000
4 813240788 1100000
Patel Kaushal M Policy No. Sum
1 813240781 1100000
2 813240782 1400000
3 813257898 2000000
5. It is submitted that out of the sanctioned funds, the disbursement of Rs.105.08 Crores took place and against Page 4 of 25 Downloaded on : Fri Jan 31 21:13:27 IST 2020 C/SCA/22356/2019 JUDGMENT which the value of the property given towards the collateral security was then valued at Rs.72.76 Crores which is higher than the 52% coverage provided for and therefore, the request was made by a written communication and email/s in 2017 and 2018 to release the additional collateral. However, to such request there was no reply from the respondents. It is submitted that on one hand, the respondents assured the petitioner of arriving at a competitive rate of interest and the same being in consideration before the higher authorities, whereas on the other hand no action was taken on any of the representations and requirements of the petitioner. It is submitted that faced with a difficult market situation on one hand and servicing of the loan account at higher rate of interest, the petitioner was compelled to look for an option which would fetch lower rate of interest and therefore, the petitioner approached two different Banks namely AXIS Bank and HDFC Bank for the credit facilities and in September 2019, both the Banks sanctioned the credit facilities to the petitioner. The rate of interest offered by the new Banks were much competitive and in the interest of the bank, the petitioner submits that the petitioner had to take a decision on account of the pressing market conditions and to avoid the action of the petitioner from becoming a NPA. It is submitted that on 24.09.2019, the credit facilities of the respondent Consortium was completely paid up and the Page 5 of 25 Downloaded on : Fri Jan 31 21:13:27 IST 2020 C/SCA/22356/2019 JUDGMENT credit facility was taken over by the new Banks from the Consortium.
6. Learned Advocate for the petitioner states that now the respondents have received the entire amount of their loan facility, and hence, it is not appropriate on part of the respondents to hold on to the collateral securities of the petitioner as the same collateral would be required to secure the financial facilities offered by the new Banks. It is submitted that the issue of prepayment charges which is 2% of the facility even if accepted as a whole would be lesser than the collateral security which is continued to be held by the respondents. The high handed action of holding on to the collateral security after receiving the repayment of full and financial services given to the petitioner is causing lot of financial problem to the petitioner which may ultimately result into financial death. It is submitted that the petitioner is ready and willing to secure the 2% prepayment charges claimed by the respondents till the respondents take a decision on what rate of interest is to be made applicable and for that reason, the additional securities in the form of LIC policies can continue to lie as collateral security with the respondent consortium but the respondents may be directed to release the titles of the collateral securities in favour of the petitioner and issue the 'No Objection Certificate' in favour of Page 6 of 25 Downloaded on : Fri Jan 31 21:13:27 IST 2020 C/SCA/22356/2019 JUDGMENT AXIS Bank and HDFC Bank. It is submitted that another problem faced by the petitioner is that the new Banks are now demanding deposit of titles of collateral securities to secure their financial facilities given to the petitioner else they would be entitled to charge 2% penalty and this amount will also act as an additional burden for no reason and thereby is causing difficulty in the business of the petitioner.
7. It is lastly submitted by learned Senior Counsel for the petitioner that the petitioner is ready and willing to settle the entire dispute by paying prepayment charges to the extent of 1% in place of 2% and is ready to forgo his claim on the lower rate of interest. It is submitted that one of the Consortium Banks namely Dena Bank has accepted the prepayment charges @ 1% and therefore, the issue with regard to the said Dena bank has been concluded as the petitioner had paid 1% and the respondent No.3 of the Consortium of Banks has accepted the same.
8. Learned Senior Counsel for the petitioner referred to and relied upon the decision of the Apex Court in the case of Zonal Manager, Central Bank of India v. Devi Ispat Ltd. reported in (2010) 11 SCC 186 to contend that that a Writ petition can also be maintained in a contractual obligation if the instrumentality of the State has acted unfairly, unjustly Page 7 of 25 Downloaded on : Fri Jan 31 21:13:27 IST 2020 C/SCA/22356/2019 JUDGMENT and unreasonably and in violation of Article 14 of the Constitution of India.
9. As against this, learned Advocate for the respondents jointly submit that the Writ Petition is not maintainable as it is a pure matter of contract between the petitioner and the respondent Banks which will be covered by the terms of the Contract. It is submitted that each of the respondent Banks had issued a sanction letter stipulating various conditions which have been accepted by the petitioner and the same has been countersigned by the petitioner showing the acceptability of all terms and conditions. Not only that, the petitioner Company which is a Limited Company has also passed a Resolution to accept the sanctioned rate of interest and therefore, it is now the contractual obligation of the petitioner to fulfill such contractual obligation.
10. The rate of interest, prepayment charges, and other charges were already specified in the sanction letter and accepted by the petitioner with open eyes and merely because after receiving the financial facilities from the respondents, if a petitioner is able to strike a better deal subsequently, then also the petitioner can also not be permitted to back on the contractual obligation. It is submitted that under the Contract it was incumbent upon the Page 8 of 25 Downloaded on : Fri Jan 31 21:13:27 IST 2020 C/SCA/22356/2019 JUDGMENT petitioner to seek prior permission from the Consortium earlier for shifting of the credit facilities. No such prior permission has been sought despite that the respondent Banks have been benevolent to accept the transfer of financial facilities. However, there is no such provision under which the prepayment charges can be waived.
11. It is submitted that the prepayment charges are the charges which are acceptable as normal banking norms. Reliance is placed on the decision of the High Court of Karnataka at Bangalore in the case of Hotel Vrinda Prakash and Others v. Karnataka State Financial Corporation and Others reported in AIR 2007 Kant 187 and it is submitted that the premium is charged on the loan being prepaid and is justified as the financial institution which operates the fund at prevailing rate of interest would suffer losses if the auction is foreclosed when the rate of interest falls. Reliance is also placed on the decision of the High Court of Calcutta in the case of SPPL Hotels Private Limited and Ors. v. Allahabad Bank and Ors. reported in MANU/WB/1794/2019 reiterating the justification of imposing prepayment charges. Reliance is placed on the decision of the Apex Court in the case of Joshi Technologies International Inc. v. Union of India (UOI) and Others reported in (2015) 7 SCC 728 and by relying upon Page 9 of 25 Downloaded on : Fri Jan 31 21:13:27 IST 2020 C/SCA/22356/2019 JUDGMENT Paragraph 70, it is submitted that where the matter is in the realm of pure contract, then the High Court ought not to exercise discretion jurisdiction under Article 226 of the Constitution of India.
12. I have considered the rival submissions and have perused the documents on record. The petitioner is a Group engaged in manufacture, trade and export of premium brass parts, fittings and components for Brass Precision Industries and has been in business for more than 35 years. The petitioner had to set up two units with installed capacity of 51,072 spindles for manufacturing of cotton yarn with an estimated cost of Rs.200 Crores and production capacity of 33 Metric Tonnes per day. For the purpose of the Project, the petitioner required credit facilities which the petitioner obtained from the respondent Banks, the respondent No.1 - Punjab National Bank being the lead Bank, the constituted Consortium of Banks sanctioned their respective financial assistance vide letters dated 09.03.2017, 03.05.2017, 28.04.2017 and 17.04.2017. The total funds sanctioned by the Consortium is Rs.135 Crores which is divided into term loan of Rs.108 Crores, cash credit facilities of Rs.22 Crores and non fund based value of Rs.5 Crores. The process fee was charged @ 1.25%. The rate of interest of the Banks were governed by the respective contract. After the sanctioned Page 10 of 25 Downloaded on : Fri Jan 31 21:13:27 IST 2020 C/SCA/22356/2019 JUDGMENT disbursement to the tune of Rs.105.08 Crores took place against the sanctioned financial facilities for which the collateral securities, at the relevant time, properties worth Rs.61.38 Crores was given by deposit of title deeds and under the letter addressed to the Punjab National Bank, the title deeds of the properties were deposited (Annexure 'A').
13. According to the petitioner, the current value of the collateral securities in the form of immovable properties is Rs.72.76 Crores and more. According to the requirement of the terms, the collateral security required to be offered was to extent of 52% of the credit facilities. The same is stipulated as per the additional stipulations of the sanction letter by the Consortium Banks and Clause 3 reads as under :-
"3. Before release of facility, company to provide additional collateral security by way of FDR/mutual funds of repute equivalent to Rs.8.82 Crores to maintain collateral security coverage for the consortium at 52% of total limits. Above additional collateral security of Rs.8.82 Crores to be released only after obtaining fresh security in the form of IP and after completion of security creation formalities."
14. The rate of interest was varying from Bank to Bank, from period to period, and the same as stated by the petitioner is not controverted by the respondents :- Page 11 of 25 Downloaded on : Fri Jan 31 21:13:27 IST 2020
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Bank Name From To Term Loan Cash
Credit
PNB 01/05/17 15-11-2017 10.50% 10.30%
16-11-2017 15-05-2018 11.40% 11.15%
16-05-2018 31-05-2018 11.55% 11.80%
01/06/18 31-03-2019 12.15% 12.05%
01/04/19 TILL DATE 12.05% 12.05%
ANDHRA 01/04/17 14-01-2018 11.15% 10.65%
BANK
15-01-2018 31-01-2019 10.50% 10.30%
01/02/19 10/04/19 10.85% 10.30%
11/04/19 TILL DATE 13.55% 13.05%
DENA BANK 01/04/19 18-04-2018 10.50% 10.30%
19-04-2018 30-11-2018 14.10% 13.60%
01/12/18 02/05/19 12.15% 11.80%
03/05/19 TILL DATE 12.70% 12.35%
INDIAN BANK 01/04/17 13-03-2018 11.75% 11.75%
14-03-2018 31-03-2019 10.50% 10.30%
01/04/19 27-08-2019 10.65% 10.65%
28-08-2019 TILL DATE 11.70% 11.70%
15. The issue of rate of interest was taken up by the petitioner in the very first meeting dated 10.05.2017, as at that time, the petitioner also drew attention about the prevailing rate of interest at lesser rates at that time as is recorded in the Minutes which are on record indicates that the issue would be taken up with the competent authority of the Bank, for the necessary approval and if approved, be implemented accordingly. However, no commitment was offered on the issue in such Minutes. The petitioner thereafter, was consistently in communication with the Consortium for reducing the rate of interest as it had varied Page 12 of 25 Downloaded on : Fri Jan 31 21:13:27 IST 2020 C/SCA/22356/2019 JUDGMENT from time to time. The Minutes of the 7th Consortium held on 19.03.2019 recorded as under :-
"Company has raised its concern regarding higher ROI charged by consortium member Bank. Consortium Member Bank including Lead Bank have informed to company that on ABS19 and External rating Based on ABS19, they will take up the matter with their respective Authorities for reduction in ROI."
16. It appears that a letter dated 20.12.2018 was addressed drawing attention of the Consortium about other Banks offering rate of interest @ 9.50% as against the rate of interest offered which ranged from 10.30% to 12.15% by the respondent Consortium. Again in July 2018, October 2018 and December 2018, nothing was received by the petitioner in response. Again in January 2019, a communication was addressed for reduction of rate of interest. Lastly, it appears that the petitioner was constrained to move the credit facilities from the Consortium respondent to AXIS Bank and HDFC Bank which sanctioned the facilities by its sanction letter dated 24.09.2019. It is not in dispute that the respondent has thereafter, received the entire amount of credit facility advanced to the petitioner from the said new Banks. The petitioner thereafter, appears to have addressed a letter dated 10.10.2019 for foreclosure of the financial facilities and the Consortium of Banks appears to have accepted and the loan was permitted to be taken over on 04.10.2019. It appears that the petitioner thereafter, entered Page 13 of 25 Downloaded on : Fri Jan 31 21:13:27 IST 2020 C/SCA/22356/2019 JUDGMENT into a communication for return of the title deeds which was given as a collateral security and at this stage, a communication was addressed to the petitioner for clearing the 2% of the prepayment charges which comes to approximately Rs.1,75,00,000/-. The clause of the prepayment which is part of the sanction letter reads as under :-
"34. Company shall have the option to prepay the loan in part or in full on payment of prepayment penalty equal to 2% of the principal amount prepaid, unless otherwise specified in the sanction. A suitable undertaking shall be submitted by the company."
17. At this stage, it is is important to refer to the Minutes of the Consortium Meeting dated 03.10.2019 which is subsequent to the takeover of the financial facilities by Axis Bank and HDFC Bank. Reliance is placed by both the sides on the Minutes. On part of the respondents, attention is drawn to the bullet point which is as under :-
"Presently the rate of interest is charge to company is link with internal and external rating of the company. Details of which are also available online at banks website. Member requested to company to draw the attention to ABS FY2018 where in company performance was not to the mark and incurred losses as result of which has degraded the rating of the company. Further sanction ROI is not link with the Repo rates as such reversal of RCI on the given ground is not tenable. As the ROI charge by the banks are in line with the banks guidelines and there is no excess ROI charge in the account, hence request for reversal for ROI is not acceptable."Page 14 of 25 Downloaded on : Fri Jan 31 21:13:27 IST 2020
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18. Hence, it is contended that the decision was already taken in connection with the rate of interest and therefore, the petitioner cannot escape the prepayment charges on the basis of the disputed claim of revision of the higher rate of interest paid by the petitioner while the financial facility was subsisting.
19. Against this, the petitioner has submitted that the recording made in the preceding paragraphs is only an explanation given to the reply of the petitioner whereas what has been resolved in the Meeting is as under :-
"Lead bank and member banks refer company's contention for non reply to letters by the bankers on reduction of ROI and explain that being the advance under consortium, all the request of banks has been discussed in the consortium meeting held from time to time. Even during the last meeting at 03.09.2019, all consortium members were agreed to take up with the competent authorities for reduction in ROI base on outcomes of internal ratings on ABS 31.03.2019 and satisfactory conduct of the company. Ratings are due for review on 30.09.2019.
All the consortium bankers agreed to take up the issues with the authorities on merit on individual basis and revert to company."
20. The last Minutes therefore, clearly gives an understanding that the Consortium principally had agreed to take up the issue of reduction of rate of interest with the competent authority. In the opinion of the Court therefore, Page 15 of 25 Downloaded on : Fri Jan 31 21:13:27 IST 2020 C/SCA/22356/2019 JUDGMENT even as per the understanding of the respondent Banks, the claim of the petitioner to get the reduced rate of interest is to be examined by the competent authorities of the Bank and till such a decision is arrived at, it is reasonable for the petitioner to believe that he would be entitled to some refund of amount which is paid towards the rate of interest, if the plea of the petitioner is to be accepted by the competent authority of a reduced rate of interest and such amount will also be a substantial amount.
21. The Court is also inclined to scrutinize the communication dated 15.01.2020 issued by the respondent No.3 - one of the Consortium Banks which is pertaining to the pre-closure charges where DENA Bank had accepted the pre-closure charges as per the Bank's resolution @ 1% which according to the petitioner has already been accepted by the petitioner. There is no quarrel on the point of entitlement of foreclosure charges by the Bank. The ratio is laid down in the judgment in the case of Hotel Vrinda Prakash and Others v. Karnataka State Financial Corporation and Others (supra) :-
"If a premium is charged on the outstanding loan being prepaid, the same is justified as Corporation, which borrows funds from the financial institutions at the prevailing rate of interest, would suffer loss, if an account is prepaid/foreclosed when the interest rates are falling."Page 16 of 25 Downloaded on : Fri Jan 31 21:13:27 IST 2020
C/SCA/22356/2019 JUDGMENT 22. The Court is in complete agreement with the
submissions made by the respondent Banks that the applying of prepayment charges was one of the conditions in the Sanction letter, which is accepted by the petitioner with open eyes when the petitioner put its signature on the sanction letters and accepted such conditions by passing a Resolution, more so when such a Resolution is a Resolution of a Limited Company under the Companies Act. The issue before the Court is not whether the Bank is entitled to prepayment charges or whether the prepayment charges are to be paid at lesser rate but the question before the Court is that when the petitioner has transferred the credit facilities in another Bank and admittedly, the respondent Consortium have received the amount in its entirety, then on the ground of the outstanding prepayment charges, can the respondent Bank hold on to the title deeds which are meant for securing the entire credit facility amount.
23. In the facts and circumstances of the case, the Court is required to strike balance to secure the interest of the respondent - Consortium Banks and at the same time, to prevent the petitioner from slipping into financial difficulties which may cost the petitioner its very existence.Page 17 of 25 Downloaded on : Fri Jan 31 21:13:27 IST 2020
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24. The Court has recorded that the petitioner is ready and willing to continue the security on the LIC Policies which are worth Rs.8.82 Crores against the prepayment charges due to the extent of approximately Rs.1.72 Crores. Useful reference be made to the judgment of the Apex Court in the case of Joshi Technologies International Inc. v. Union of India (UOI) and Others (supra), where the Court summarized the legal position in Paragraph 69 as under :-
"69. Further legal position which emerges from various judgments of this Court dealing with different situations/aspects relating to the contracts entered into by the State/public Authority with private parties, can be summarized as under:
(i) At the stage of entering into a contract, the State acts purely in its executive capacity and is bound by the obligations of fairness.
(ii) State in its executive capacity, even in the contractual field, is under obligation to act fairly and cannot practice some discriminations.
(iii) Even in cases where question is of choice or consideration of competing claims before entering into the field of contract, facts have to be investigated and found before the question of a violation of Article 14 could arise. If those facts are disputed and require assessment of evidence the correctness of which can only be tested satisfactorily by taking detailed evidence, Involving examination and cross- examination of witnesses, the case could not be conveniently or satisfactorily decided in proceedings under Article 226 of the Constitution. In such cases court can direct the aggrieved party to resort to alternate remedy of civil suit etc.
(iv) Writ jurisdiction of High Court under Article 226 was not intended to facilitate avoidance of obligation voluntarily incurred.
(v) Writ petition was not maintainable to avoid contractual obligation. Occurrence of commercial difficulty, inconvenience or hardship in performance of the conditions agreed to in the contract can provide no justification in not complying with the terms of contract Page 18 of 25 Downloaded on : Fri Jan 31 21:13:27 IST 2020 C/SCA/22356/2019 JUDGMENT which the parties had accepted with open eyes. It cannot ever be that a licensee can work out the license if he finds it profitable to do so: and he can challenge the conditions under which he agreed to take the license, if he finds it commercially inexpedient to conduct his business.
(vi) Ordinarily, where a breach of contract is complained of, the party complaining of such breach may sue for specific performance of the contract, if contract is capable of being specifically performed. Otherwise, the party may sue for damages.
(vii) Writ can be issued where there is executive action unsupported by law or even in respect of a corporation there is denial of equality before law or equal protection of law or if can be shown that action of the public authorities was without giving any hearing and violation of principles of natural justice after holding that action could not have been taken without observing principles of natural justice.
(viii) If the contract between private party and the State/instrumentality and/or agency of State is under the realm of a private law and there is no element of public law, the normal course for the aggrieved party, is to invoke the remedies provided under ordinary civil law rather than approaching the High Court under Article 226 of the Constitutional of India and invoking its extraordinary jurisdiction.
(ix) The distinction between public law and private law element in the contract with State is getting blurred.
However, it has not been totally obliterated and where the matter falls purely in private field of contract. This Court has maintained the position that writ petition is not maintainable. Dichotomy between public law and private law, rights and remedies would depend on the factual matrix of each case and the distinction between public law remedies and private law, field cannot be demarcated with precision. In fact, each case has to be examined, on its facts whether the contractual relations between the parties bear insignia of public element. Once on the facts of a particular case it is found that nature of the activity or controversy involves public law element, then the matter can be examined by the High Court in writ petitions under Article 226 of the Constitution of India to see whether action of the State and/or instrumentality or agency of the State is fair, just and equitable or that relevant factors are taken into consideration and irrelevant factors have not gone into the decision making process or that the decision is not arbitrary.
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(x) Mere reasonable or legitimate expectation of a citizen, in such a situation, may not by itself be a distinct enforceable right, but failure to consider and give due weight to it may render the decision arbitrary, and this is how the requirements of due consideration of a legitimate expectation forms part of the principle of non-arbitrariness.
(xi) The scope of judicial review in respect of disputes falling within the domain of contractual obligations may be more limited and in doubtful cases the parties may be relegated to adjudication of their rights by resort to remedies provided for adjudication of purely contractual disputes."
25. The Court while referring to the judgment in the case of ABL International Limited v. Export Credit Guarantee Corporation reported in (2004) 3 SCC 553 stated in Paragraph 67 as under :-
"67. The Court thereafter summarized the legal position in the following manner :
"27. From the above discussion of ours, following legal principles emerge as to the maintainability of a writ petition :-
(a) In an appropriate case, a writ petition as against a State or an instrumentality of a State arising out of a contractual obligation is maintainable.
(b) Merely because some disputed questions of facts arise for consideration, same cannot be a ground to refuse to entertain a writ petition in all cases as a matter of rule.
(c) A writ petition involving a consequential relief of monetary claim is also maintainable.
28. However, while entertaining an objection as to the maintainability of a writ petition under Article 226 of the Constitution of India, the court should bear in mind the fact that the power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provisions of the Constitution. The High Court having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. The Court has imposed upon itself certain restrictions in the exercise of this power Page 20 of 25 Downloaded on : Fri Jan 31 21:13:27 IST 2020 C/SCA/22356/2019 JUDGMENT [See: Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai & Ors. [1998 (8) SCC 1]. And this plenary right of the High Court to issue a prerogative writ will not normally be exercised by the Court to the exclusion of other available remedies unless such action of the State or its instrumentality is arbitrary and unreasonable so as to violate the constitutional mandate of Article 14 or for other valid and legitimate reasons, for which the court thinks it necessary to exercise the said jurisdiction."
26. In the case of Zonal Manager, Central Bank of India v. Devi Ispat Ltd. (supra) which had similar factual background, in Paragraph 20 it is narrated as under :-
"20. In the case on hand, the respondent- Company has demonstrated that based on the advise of the appellant- Bank, they shifted their accounts to another Nationalized Bank and through an arrangement with the State Bank of India, a cheque of Rs.15 crores was deposited by their Bank and in token of the same, by statement of accounts dated 14.05.2009 the appellant- Bank clearly mentioned that there is no due or nil balance from the respondent-Company (Emphasis supplied). In such circumstances, when the relief sought for does not relate to interpretation of any terms of contract, the Bank being a Nationalized Bank, a Writ Court can issue appropriate direction in certain circumstances as mentioned above. In such a factual matrix, the reliance placed on these two decisions is not helpful to the appellant-Bank."
And in such facts, the Apex Court has held as under :-
"28. 15) It is clear that, (a) in the contract if there is a clause for arbitration, normally, writ court should not invoke its jurisdiction; (b) the existence of effective alternative remedy provided in the contract itself is a good ground to decline to exercise its extraordinary jurisdiction under Art. 226; and (c) if the instrumentality of the State acts contrary to the public good, public interest, unfairly, unjustly, unreasonably discriminatory and violative of Art. 14 of the Constitution of India in its contractual or statutory obligation, writ petition would be maintainable.Page 21 of 25 Downloaded on : Fri Jan 31 21:13:27 IST 2020
C/SCA/22356/2019 JUDGMENT However, a legal right must exist and corresponding legal duty on the part of the State and if any action on the part of the State is wholly unfair or arbitrary, writ courts can exercise their power. In the light of the legal position, writ petition is maintainable even in contractual matters, in the circumstances mentioned in the earlier paragraphs."
27. The submission made by the respondent of not taking prior approval is based on a proforma communication dated 11.05.2017 which is in response to the sanction letter of the respondent Bank where Clause 15 reads as under :-
"15. We will not enter into borrowing arrangement with any other Banks/financial institutions, without prior approval of the said Banks/PNB Consortium."
28. Clause 15 will have to be understood of seeking prior approval incase the petitioner has to enter into any borrowing arrangement with any other Bank or Financial Institution. The existence of foreclosure or prepayment clause is indicative of the fact that in the Agreement, it is provided for prepayment and the rates made applicable by the Consortium Bank with prepayment is from the individual sources, the rate applicable is lower and when the prepayment is by any another financial institution, the prepayment charges are higher. When such clauses are already provided for, the action of the petitioner to shift credit facilities cannot be termed to be borrowing arrangement with financial facilities with the Consortium existing.
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C/SCA/22356/2019 JUDGMENT
29. In view of the aforesaid discussion, this Court is of the view that this is a case where in the factual background requires interference with the decision of the respondent Consortium Bank to withhold to the title deed of the collateral securities against the outstanding prepayment charges. At the same time, in the facts of the present case, undoubtedly the petitioner has raised from the beginning the issue of higher rate of interest charged by the respondent Banks and its entitlement to a reduced rate of interest which exercise is under active consideration of the respondent Bank, even as per the Minutes recorded by the Consortium meeting meaning thereby the petitioner had continued to pay interest at the higher rate as mentioned in the respective sanction letters to the respective Banks and now the claim of reduced rate of interest if accepted, the petitioner has some claim to refund of such amount that is paid towards rate of interest.
30. Considering the interest of Bank which is also to be protected to the extent of its claim of 2% of prepayment charges, the respondent Banks are therefore, directed to release the title deeds covered under the letter at Annexure 'A' of the petition addressed to the Assistant General Manager, Punjab National Bank, Ahmedabad and the Page 23 of 25 Downloaded on : Fri Jan 31 21:13:27 IST 2020 C/SCA/22356/2019 JUDGMENT properties are described as under :-
(A) NA Land situated at S.No.354/F.P. No.84 of Mouje, Near Prakruti Home, Shela, Ahmedabad owned by Shree Gangdasbhai Kachhadia.
(B) NA Land situated at S.No.384/F.P. No.109 of Mouje, Near Prakurti Home, Shela, Ahmedabad owned by Shree Gangdasbhai Kachhadia.
(C) Residential Bungalow at Plot No.31, Shree Raghuvir Co-
op. Housing Soc. Ltd. B/h. ITI, Off. Indira Gandhi Road, Jamnagar owned by Atulbhai G. Kachhadia.
(D) Land situated at its Units at S.No.327/A, 327/B, 329, 333, 338 and 322/323 at Jamnagar-Rajkot Highway, Moti Banugar Village, District Jamnagar - 361 120 and building to be constructed thereon owned by Super Spintex Pvt. Ltd. The respondent Banks to release the collateral titles alongwith N.O.C. within a period of two (2) weeks from the date of receipt of writ of the order of this Court.
31. However, the LIC Policies covered under the communication dated 26.05.2017 (Annexure 'M') are mentioned in table hereunder, would continue to be held as Security till the issue of reduced rate of interest is decided by the respondent Banks and subject to the decision that may be taken up :-
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C/SCA/22356/2019 JUDGMENT
Policy Holder Name No. Policy No. Sum
Patel Maheshbhai 1 810374680 30000
2 810389291 1300000
3 810390725 800000
4 813241462 1400000
5 813241463 1100000
6 813261889 10000000
7 813296606 20000000
Patel Ashaben M Policy No. Sum
1 810389342 1300000
2 810389903 1000000
3 813240787 1400000
4 813240788 1100000
Patel Kaushal M Policy No. Sum
1 813240781 1100000
2 813240782 1400000
3 813257898 2000000
32. The petition is allowed in the aforesaid terms. Rule
made absolute. Direct Service is permitted.
Sd/-
(A.Y. KOGJE, J) CAROLINE Page 25 of 25 Downloaded on : Fri Jan 31 21:13:27 IST 2020