Calcutta High Court (Appellete Side)
Guha Roy Food Joint And Hotel Private ... vs The State Of West Bengal & Ors on 30 March, 2023
Author: Moushumi Bhattacharya
Bench: Moushumi Bhattacharya
IN THE HIGH COURT AT CALCUTTA
Constitutional Writ Jurisdiction
Appellate Side
Present :-
The Hon'ble Justice Moushumi Bhattacharya
W.P.A 12769 of 2022
Guha Roy Food Joint and Hotel Private Limited & Anr.
vs.
The State of West Bengal & Ors.
For the petitioners : Mr. Mainak Bose, Adv.
Mr. Rupak Ghosh, Adv.
Mrs. Sweta Gandhi, Adv.
For the State : Mr. Prantik Garai, Adv.
For the respondent nos.3 and 4 : Mr. Debnath Ghosh, Adv.
Ms. Sudeshna Mazumdar, Adv.
For the respondent no. 5 : Ms. Sipra Chanda, Adv.
Last Heard on : 27.03.2023.
Delivered on : 30.03.2023.
Moushumi Bhattacharya, J.
1. The petitioners seek a direction on the respondent no. 3 Finance Company to grant the benefit of an Emergency Credit Line Guarantee Scheme (ECLGS) to the petitioners. The ECLGS was floated by the National Credit Guarantee Trustee Company Ltd. of the Ministry of Finance, Government of India on 23.5.2020 by which the Ministry of Finance 2 extended 100% guarantee coverage for additional working capital term loans in case of Banks and FIs and additional term loans up to 20% of their entire outstanding credit as on 29.2.2020 subject to the account being less than or equal to 60 days past due as on that date. The petitioners also seek setting aside of the order passed by the District Magistrate of 18.4.2022 under section 14 of the SARFAESI Act, 2002.
2. A prayer for an ad-interim protection was refused by this Court by the order dated 22.8.2022. The petitioners were directed to avail of the remedies available to the petitioners under the SARFAESI Act, 2002. The petitioners have filed appropriate applications before the Debts Recovery Tribunal for that part of the petitioners' claim.
3. Therefore, the only question which is before the Court is whether the petitioners are entitled to grant of the benefit of the ECLGS and whether the respondent no. 3 (R3) which is a private Financial Institution comes within the jurisdiction of a Writ Court for issue of a writ of Mandamus against the respondent no. 3.
4. The first question which should be dealt with is whether the R3 is amenable to writ jurisdiction under Article 226 of the Constitution of India.
5. The argument is that the respondent no. 3 Financial Institution (FI) is a private entity who does not fall within the definition of "state" under Article 12 or "person or authority" under Article 226 of the Constitution and would not be amenable to judicial review. Several decisions have been pronounced by the Supreme Court on whether a private entity including a private bank 3 would come within the purview of Article 226 of the Constitution. There is a consensus, apparent from the decisions, that a private body would be drawn within the fold of Article 226 where the private body exercises public functions or functions having an element of public interest or work with a reach and depth akin to that performed by the State in its sovereign capacity.
6. The subject matter of the present writ petition deals with the Emergency Credit Line Guarantee Scheme (ECLGS) which was floated by the Ministry of Finance, Government of India, for providing 100% guarantee coverage for additional working capital term loans in case of Banks and FIs and additional term loans in case of Non Banking Financial Company (NBFC) up to 20% of their outstanding credits as on 29th February, 2020. The Scheme provided that eligible institutions, most specifically Member Lending Institutions (MLIs), would have to register themselves for seeking the guarantee cover under the said Scheme. The resolution framework issued by the Reserve Bank of India (RBI) on 6th August, 2020 with regard to the said Scheme specifically states that the resolution framework was necessary in the wake of the economic fallout caused by the Covid-19 pandemic and the resulting financial stress on borrowers across the board. The ECLGS read with the resolution framework/s published by the RBI binding all commercial banks makes it clear that the Scheme was floated in public interest to help small and medium scale business tide over the financial instability caused by the pandemic.
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7. The Scheme issued on 23rd May, 2020 read with the Operational Guidelines updated as on 30th March, 2022 further makes it clear that the Scheme would be binding on all Banks and FIs as well as NBFCs. The respondent no. 3 FI is admittedly a Member Lending Institution under the Scheme and is consequently drawn within the obligations and duties incorporated therein. The object of the Scheme elevates the Scheme into one with a clear public element for preserving the public interest following the pandemic. Therefore, the role of the respondent no. 3 cannot be seen in the limited scope of a private financial institution. The respondent no. 3 is discharging a public function under the Scheme on behalf of the Government of India and the respondent is discharging its duty and acting as a nodal agency of the State in extending the benefit of the Scheme to its eligible borrowers.
8. It may also be stated that RBI circulars have statutory force and are binding on the constituent Banks and FIs who are under a statutory obligation to comply with the mandates of the circular, refer: Central Bank of India vs. Ravindra; (2002) 1 SCC 376 where the Supreme Court held that the power conferred by sections 21 and 35-A of the Banking Regulation Act, 1949 is coupled with a duty to act and that the Reserve Bank of India, as the prime banking institute of the country, is entrusted with a supervisory role and is empowered to issue binding directions having statutory force in the interest of public.
9. Moreover, the Supreme Court has held in several decisions that a body which performs public or statutory duties for the benefit of the public 5 would fall within the scope of Article 226. In Federal Bank Ltd. Vs. Sagar Thomas: (2003) 10 SCC 733, the Supreme Court also made an exception for a private company or a person where such an entity may be amenable to writ jurisdiction when it becomes necessary to compel the entity to enforce any statutory obligations of public nature.
10. The above factors, seen in light of the present facts, persuade this Court to hold that the respondent nos. 3 and 4 would be amenable to the writ jurisdiction of the High Court under Article 226 of the Constitution. The writ petition against the said respondents is accordingly held to be maintainable.
11. The brief facts which are relevant for adjudication are as follows.
12. The respondent no. 3 granted credit facilities to the petitioner no. 1 in the form of a Term Loan on 28.2.2019 against a mortgage repayable in equated monthly instalments. The RBI issued a Circular on 27.3.2020 during the Covid crisis consequent to which the petitioners were granted moratorium with regard to repayment of EMI between March to August, 2020. The petitioners' loan account remained standard / regular till August, 2020. This would appear from a notice issued by R3 under section 13(2) of the SARFAESI Act, 2002 which contains the specific statement that the petitioners' loan account were to be classified as NPA on 15.12.2020 but in view of the moratorium period granted by the RBI, the same was not done. Respondent no. 3 classified the petitioners' account on NPA as on 31.3.2021. The Ministry of Finance, Government of India introduced the ECLGS on 23.5.2020 for providing 100% guarantee coverage for additional 6 working capital term loan for Banks and Financial Institutions as on 29.2.2020. All scheduled Banks and NBFCs which were in operation for at least 2 years as on 29.2.2020 were eligible as a Member Lending Institution (MLI) under the said Scheme. The Operational Guidelines updated as on 30.3.2022 outlines the components of the ECLGS with the extension from ECLGS 1.0 to ECLGS 4.0 and also provides for the eligibility criteria.
13. Learned counsel appearing for the petitioners submits that the petitioner no. 1 was eligible under the ECLGS 1.0 as well as 2.0 and 3.0 which were specifically extended to borrowers in the Hospitality sector. According to counsel the petitioners were hence entitled to 40% of the total outstanding as on 29.2.2020 as also 20% under ECLGS 1.0. Counsel further submits that the petitioners' total credit outstanding as on 29.2.2020 was approximately Rs. 3 crores which makes the petitioners eligible for 40% of Rs. 3 crores that is Rs. 1.20 crores.
14. Learned counsel appearing for the R3 Financial Institution submits that the writ petition was filed primarily for setting aside the order passed by the District Magistrate on 18.4.2022 under section 14 of the SARFAESI Act, 2002. Counsel submits that the eligibility criteria under the Scheme is subject to the DPD (Days Past Dues) and the classification of the account as SMA-1 and SMA-2. Counsel submits that the petitioners had every option to apply under the Scheme but chose not to. Counsel submits that the petitioner no. 1 maintains the two loan accounts with the R3 and that the petitioners exceeded the DPD by 60 days and also submits that the petitioners failed to make payments after 26.12.2019. Further, the 7 petitioners made continuous default in the payment of instalments which rendered the petitioners ineligible for any benefit under the Scheme. Counsel submits that the ECLGS on 23.5.2020 was modified on 26.11.2020 which incorporated an opt-in facility which means that the person must make an application for obtaining the benefit of the Scheme
15. The objection taken on behalf of the R3 with regard to the primary relief claimed in the writ petition has become academic since the order passed by this court on 8.12.2022 records that the petitioners were already before the Debts Recovery Tribunal as on that date against the order passed by the District Magistrate under section 14 of the SARFAESI Act, 2002. The petitioners have not prayed for any relief with reference to the order passed by the District Magistrate and have restricted their prayers only to grant of the benefit under the ECLGS.
16. The notice issued by the respondent under section 13(2) of the SARFAESI Act specifically records that the loan accounts of the petitioners were to be classified as NPA on 15.12.2020 in accordance with the master directions issued by the Reserve Bank of India. The 13(2) notice further records that the loan accounts of the petitioners however were not classified as NPA on 15.12.2020 in view of the moratorium extended by RBI for 6 months on payment of instalments falling due between 1.3.2020 - 31.8.2020 vide circulars dated 27.3.2020 and 23.5.2020 of the RBI. The respondent no. 3 has also referred to an interim order passed by the Supreme Court on 23.3.2021 in Writ Petition (C) No. 476 of 2020; Small Scale Industrial Manufacturers Association v. Union of India whereby the 8 Supreme Court directed that the loan accounts which were not declared NPA till 31.8.2020 shall not be declared as NPA till further orders. The above notice makes it clear that the petitioner's loan account remained standard / regular as on 29.2.2020. The petitioner's loan account was classified as NPA only subsequently on 31.3.2021.
17. The date 29.2.2020 is significant since the Operational Guidelines updated as on 30.3.2022 by the National Credit Guarantee Trustee Company (NCGTC) (Ministry of Finance, Government of India) provides for the eligibility criteria under the Scheme and that every Member Lending Institution (MLI) was to provide 100% guarantee in respect of eligible credit facility extended by them to the borrowers whose accounts were standard as on 29.2.2020. This would appear from Guideline 4 of the updated Guidelines which defines an eligible borrower under the ECLGS 1.0. Moreover, the petitioner no.1 was also eligible under the ECLGS 1.0, ECLGS 2.0 and ECLGS 3.0 which were specifically extended to borrowers in the Hospitality Sector. These also show that the petitioner was entitled to 40% of the total outstanding as on 29.2.2020.
18. Since the petitioners total credit outstanding as on 29.2.2020 was Rs. 3 crores the petitioner was entitled to receive 40% of the 3 crores i.e. Rs. 1.20 crores. The petitioners were otherwise entitled to 20% of Rs. 3 crores under ECLGS 1.0 which is 60 lakhs. It must also be noted that since the credit facility required to be granted under the Scheme is by way of a pre- approved loan, 100% of which was guaranteed by the National Credit Guarantee Trustee Company Limited (Ministry of Finance, Government of 9 India), every eligible borrower was statutorily entitled to additional credit facility approved under the Scheme.
19. Moreover, contrary to the allegation made on behalf of the FI, the Scheme does not require an eligible borrower to apply for the approved credit facility under the Scheme. The relevant part of the Scheme shows that lending institutions shall ensure that the benefit of the Scheme is extended to borrowers having stress on account of Covid-19. This would appear from the Resolution Framework issued by the RBI for Covid-19 related stress on 6.8.2020. There is nothing in the Resolution Framework issued by RBI to require a borrower to apply for the benefit of the Scheme.
20. Moreover, FAQ 11 to the ECLGS updated as on 31.3.2022 and issued by the National Credit Guarantee Trustee Company shows that the ECLGS is a pre-approved loan and that an offer will come out from the MLI to the eligible borrower for the pre-approved loan which the borrower may choose to accept. If the borrower is not interested in availing of the loan, the borrower may indicate accordingly. The Sector-specific thresholds, which is part of the Circular issued by RBI on 7.9.2020 also includes hotels, restaurants and tourism as sectors which were brought within the benefit as a Covid-19 related measure affecting certain sectors more than others. The respondent FI hence had a duty and obligation to extend the Scheme to the petitioners.
21. The objections as to the eligibility of the petitioners is also without basis since the said allegation is contrary to the notice issued by the respondent FI to the petitioner under section 13(2) of the SARFAESI Act. The 10 notice reflects that the petitioners' accounts were standard on 29.2.2020 which makes the petitioner eligible under the Scheme. The Scheme makes it clear that the only requirement for eligibility is that the borrowers' account would have to be standard / regular as on 29.2.2020.
22. The document placed on behalf of the respondent FI reflects inter alia that any reference to the petitioners' credit rating is irrelevant to the Scheme which would also be evident from the FAQs in relation to the Circular by the National Credit Guarantee Trustee Company. FAQ no. 85 specifically states that the Scheme is designed with specified eligibility criteria and 100% guarantee by the Government of India and that the coverage from NCGTC is not restricted by a borrower's credit rating or Bureau Score. Moreover, the opt-in facility referred to by the respondent is of 26.11.2020 which is also much earlier to the Guidelines issued by NCGTC on 30.3.2022 which has been relied on by the petitioners.
23. The above reasons make it clear that the respondent FI had a duty and an obligation to extend the benefit of the ECLGS to the petitioners at the relevant point of time and its inaction and failure to do so makes the impugned action amenable to interference by the Writ Court. The reasons for which the writ petition has been held to be eligible are also to be referred to in this context. This Court had passed the judgment on substantially similar facts in Olive Tree Retail Private Limited vs. South Indian Bank Limited; 2023 SCC OnLine Cal 143 with reference to the ECLGS. The material shown to this Court by the respondent does not persuade this Court to come to a different view in the present facts.
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24. WPA 12769 of 2022 is accordingly allowed by directing the R3 Financial Institution to consider grant of benefit of the ECLGS to the petitioners in terms of the Resolution Framework/s circulated by the RBI and the Guidelines published by the NCGTC on 30.3.2022 with regard to the ECLGS. The eligibility of the petitioners shall be considered in accordance with the relevant ECLGS and the Resolution Framework which would apply to the petitioners' case. The respondent no. 3 shall complete the entire exercise within an appropriate time frame so that the Scheme remains subsisting and relevant as far as the petitioner is concerned.
25.. The writ petition is disposed of accordingly.
26. The prayer for stay of the judgment made on behalf of the Financial Institutions is considered and refused.
Urgent Photostat certified copies of this judgment if applied for be supplied to the respective parties upon fulfillment of requisite formalities.
(Moushumi Bhattacharya, J.)