Andhra HC (Pre-Telangana)
Taraporewalla Agencies vs Government Of Andhra Pradesh And Ors. on 7 January, 2004
Equivalent citations: AIR2004AP283, 2004(1)ALD724, 2004(3)ALT536, AIR 2004 ANDHRA PRADESH 283, (2004) 3 ANDH LT 536 (2005) 1 BANKCLR 48, (2005) 1 BANKCLR 48
ORDER V.V.S. Rao, J.
1. This common order shall dispose of all the six writ petitions as grounds urged in support of the writ petitions in the light of the provisions of A.P. Co-operative Societies Act, 1964 (hereinafter called 'the act') and in the background of reconstruction scheme for Charminar Co-operative Bank Limited ('bank' for brevity) formulated by Government of Andhra Pradesh (hereafter called 'GoAP') in accordance with Section 115-B of the Act are same. The Respondents, GoAP and Bank, represented by its Administrator filed common counters in all the writ petitions and it would be expedient to deal with factual as well as legal issues together. Be it noted, the cases came to be filed challenging certificates for recovery of loan amount (petitioners call them Award) of different dates issued by fourth respondent and seeking to quash them by writ of certiorari. As the amounts borrowed by various petitioners (proprietary concerns) are different and for different business purposes, a brief reference to the facts of each case would be necessary.
W.P.No. 23069 of 20032. The petitioner M/s. Taraporewalla Agencies is a proprietary concern. The bank sanctioned demand loan facility for the purpose of petitioner's business after taking necessary security for the loan. The bank faced threat of liquidation due to combination of factors and the Reserve Bank of India (hereafter called 'RBI') imposed restriction on normal banking operations. Though the schedule of repayment was still very much in currency, the bank approached the Joint Registrar of Co-operative Societies/OSD (fourth respondent) requesting for certificate of recovery of arrears of loan amount in a sum of Rs. 2,83,66,471/-(Rupees two crores, eighty three lakhs, sixty six thousand, four hundred and seventy one only) up to 30.6.2002. The Joint Registrar issued notices to the petitioner and two others who are presumably guarantors. Petitioner appeared through a Counsel on 5.5.2003 and sought time for filing counter. The matter was adjourned, but the petitioner and two others remained ex parte. Therefore, the Joint Registrar in exercise of powers under Sub-section (1) of Section 71 of the Act, in A.R.C.No. 86 of 2003 dated 28.6.2003 ordered that the amount mentioned hereinabove is due as arrears to the bank by the petitioner and two others and directed them to pay the said amount with further interest at 22% per annum compounded quarterly from 1.7.2002 till the date of payment within 15 days from the date of receipt of the Certificate. It was also observed that if the petitioner and others fail to pay the arrears jointly and severally, it would be open to the Respondent Bank to execute Certificate for Recovery under Section 70(2) of the Act and realize the amount by selling mortgaged properties. The petitioner assails the said order in this writ petition.
W.P. No. 23290 of 20033. The petitioner M/s. Atlas Builders, is a proprietary concern who availed demand loan facility from the Bank in September, 1999 for the purpose of its business. After the RBI imposed restrictions on the banking transactions, the Bank approached the Joint Registrar for Certificate of Recovery. Notices were issued and on 28.4.2003, petitioner appeared through a Counsel and filed a memo to the effect that the petitioner and guarantors are willing to avail One Time Settlement (OTS) scheme extended to the borrowers and requested the Joint Registrar/Arbitrator under the Act to pass appropriate orders. The Joint Registrar by order dated 30.4.2003 in A.R.C.No. 30118 of 2002 determined the amount as arrears to the bank from the petitioner as Rs. 2,21,31,409/-(Rupees two crores, twenty one lakhs, thirty one thousand, four hundred and nine only) and directed the petitioner and the guarantors to pay the said amount at 22% per annum compounded quarterly from 1.7.2002 till the date of payment within 15 days from the date of receipt of the Certificate. It was also observed that if the petitioner fails to pay the arrears jointly and severally, it would be open to the Respondent Bank to execute Certificate for Recovery under Section 70(2) of the Act and realize the amount by selling mortgaged properties. The petitioner assails the said order in this writ petition.
W.P.No. 23300 of 20034. The petitioner M/s. Kareem Associates, is a proprietary concern availed cash credit loan facility from the Bank in September, 2000. The bank approached the Joint Registrar for Certificate of Recovery. Though notices were issued and the matter was adjourned number of times, petitioner and other guarantors did not file counter. They remained ex parte and therefore the Joint Registrar by order dated 20.6.2003 in A.R.C. No. 29849 of 2002 determined the amount due from the petitioner and other guarantors jointly and severally as Rs. 2,74,09,965/- (Rupees two crores, seventy four lakhs, nine thousand, nine hundred and sixty five only) and directed the petitioner to pay the said amount with 22% per annum compounded from 1.7.2002 till the date of payment. The bank was given liberty to execute the order in case of non-compliance of certificate of recovery under Section 70(2) of the Act and also realize the amount from the mortgaged properties.
W.P. No. 23480 of 20035. The petitioner M/s RAM Software is a proprietary concern, seeks writ of certiorari to quash the Award dated 18.6.2003 in A.R.C. No. 30119 of 2002 passed by the Joint Registrar/OSD. The petitioner availed cash credit facility from the Bank in September, 2000 and the Bank initiated proceedings under Section 70(1) of the Act before the Joint Registrar. Petitioner remained ex parte inspite of receiving notices. Therefore by proceedings dated 18.6.2003, certificate for recovery was issued for an amount of Rs. 3,3 5,26,709/- (Rupees three crores, thirty five lakhs, twenty six thousand, seven hundred and nine only) with interest at 22% per annum compounded quarterly from 1.7.2002 till the date of payment. The Joint Registrar also observed that the Certificate of recovery is executable for recovery of arrears under Section 70(2) of the Act against the petitioner and others jointly and severally and also by selling mortgaged properties. The petitioner contends that the said award is illegal and arbitrary.
W.P. No. 23481 of 20036. The petitioner M/s. Z.A. Traders, is a proprietary concern which availed demand loan facility from the Bank in April, 1998. Bank approached the Joint Registrar of Co-operative Societies by filing an application under Section 71(1) of the Act being A.R.C. No. 29850 of 2002. The petitioner and other guarantors remained ex parte and therefore by order dated 20.6.2003 the Joint Registrar issued a Certificate for Recovery of amount for Rs. 90,27,594/- (Rupees ninety lakhs, twenty seven thousand, five hundred and ninety four only) payable with 22% per annum compounded quarterly from 1.7.2002 till the date of payment. The certificate is executable under Section 70(2) of the Act against the petitioner and others jointly and severally and also by selling the mortgaged properties. Petitioner filed the writ petition praying this Court to quash the said Award/Certificate of Recovery, as it is illegal and arbitrary.
W.P. No. 23681 of 20037. The petitioner M/s. New Lucky House, is a proprietary concern, represented by its propreitrix Ms. Neelu Chopra. The bank advanced demand loan facility to the petitioner. After the bank started encountering rough weather, Reserve Bank of India imposed restrictions on normal banking operations. The bank also initiated action for recovery of the loan amount and filed an application under Section 74 of Multi State Co-operative Societies Act, 1984 (hereafter called 'the Central Act') and petitioner remained ex parte. Therefore by order dated 22.8.2002 in ARC No. 29500 of 2002-L1 the fourth respondent issued decree in favour of the Bank directing the petitioner and other guarantors to pay an amount of Rs. 65,08,047/- (Rupees sixty five lakhs, eight thousand and forty seven only) with interest at 22% per annum from 1.4.2002 till the date of realization. The petitioner made a proposal to the Joint Registrar for OTS scheme.
8. The petitioner earlier filed W.P.No. 22429 of 2003 challenging the Award dated 22.8.2002 passed by the Joint Registrar under Section 74 of the Central Act. By order dated 24.10.2003, this Court disposed of the writ petition directing the Joint Registrar to dispose of the representation made by the petitioner proposing OTS scheme. The said official by order in E.P.No. 12 of 2003 dated 7.11.2003 rejected the proposal of petitioner for OTS on the ground that once an award is passed, the borrower is not eligible to come under OTS package. Petitioner assails the said award passed by the Joint Registrar dated 22.8.2002 as well as the order dated 7.11.2003 rejecting OTS proposal.
Some more facts
9. The following are some more facts common to all writ petitions except W.P. No. 23681 of 2003 in which proposal of petitioner for OTS package was already rejected by the Joint Registrar on the ground that award has already been passed.
10. The Charminar Co-operative Urban Bank Limited was registered under A.P. Act of 1964 in August, 1985. The bank wanted to extend its area of operation outside Andhra Pradesh and therefore was converted as a society under the Central Act of 1984 Multi State Co-operative Societies Act, 1984 which is repealed by MSCS Act, 2002.. On 25.2.2002, Chairman of Bank committed suicide triggering a chain of event. This resulted in a rush for withdrawals of deposits posing threat of liquidity crisis. RBI imposed restrictions on normal banking operations of the bank. Therefore GoAP stepped in and decided to restructure and revive the bank in public interest. In the meanwhile as the Bank did not extend its operations outside the State, it was again re-registered under A.P. Act on the advice of the Central Registrar.
11. The State Government evolved a scheme for revival of the bank and as required under Section 115-B(i) and submitted proposal to RBI for consideration and approval. By letter dated 25.2.2003, RBI accorded approval for the reconstruction scheme of the bank and Government issued orders vide G.O. Ms. No. 4, Agriculture and Co-operation (Co-op.III) Department dated 27.2.2003. The scheme came into effect from 3.3.2003 when it was published in the Gazene. The notification reads as under:
Under Section 11-B(i) of the Andhra Pradesh Co-operative Societies Act, 1964 (Andhra Pradesh Act No. 7 of 1964), with the previous sanction of the Reserve Bank of India, the Government of Andhra Pradesh, hereby notify the scheme of re-construction of the Charminar Co-operative Urban Bank Limited, as per the Annexure appended to this order.
12. The reconstruction scheme is contained in Annexure to G.O, Ms. No. 4, dated 27.2.2003. The salient features of the scheme may be noticed. All other Urban Co-operative Banks in Andhra Pradesh were asked to bring funds to the extent of Rs. 5.00 crores as long term investment duly routing them through A. P. State Co-operative Bank. Para 3 of the scheme gives details of payments to the depositors after the funds are received from Deposit Insurance Credit Guarantee Corporation ('DICGC' for brevity). The amount of interest outstanding on deposits above Rs. 1.00 lakh shall be converted into share capital. All deposits above Rs. 1.00 lakh will be re-invested for a further period of 3/5 years carrying an interest rate 1% above the rate being paid by State Bank of India. Para 4 deals with Savings Bank Account/Current Accounts and Recurring Accounts etc. Para 6 is to the effect that an amount of Rs. 186.02 crores (approximately) would be paid by DICGC towards discharge of their obligation to depositors under Deposit Insurance Credit Guarantee Corporation Act, 1961 (for short 'DICGC Act'), which shall be utilized for repaying deposits as per norms. RBI was requested to issue necessary instructions for re-starting regular banking operations by lifting restrictions under Section 35-A of Reserve Bank of India Act, 1934 (RBI Act). Para 7 empowers the State Government to appoint a Board consisting of professionals, depositors and Government representatives, which shall continue till the bank achieves the stage of viability. Any change in the administration/management structure of the bank can be made after achieving such viability and after obtaining prior approval of the RBI. Para 8 stipulates that 60% of the fresh deposits shall be kept in State/ Central Government Securities and the balance to be utilized for renewal of existing standard advances or by way of loans and advances against tangible securities like Gold, National Savings Certificates etc. Para 5 deals with collection of loan amount which is more relevant for the purpose of this case and needs to be excerpted.
5. Collection of advances :
(a) The bank will re-calculate simple interest on all loan accounts, from the date of disbursement to the date of reconstruction @ 18% per annum simple and arrive at the crystallised amount of overdue principal and interest after adjusting the repayments made by the borrower till date.
(b) Those borrowers, who opt for OTS and settle the account by paying the entire crystallised amount in one lumpsum during the currency of OTS scheme will be given a further rebate of 25% on the interest component in the crystallised amount.
(c) Those who pay 20% upfront and balance 80% of the crystallised amount due in account with a period of six months will get a further rebate of 10% on the interest component payable by them.
(d) The borrowers not availing the above mentioned two options will have their accounts rescheduled to be payable in 35 monthly installments which will carry interest @ 15% per annum.
(e) The interest waiver/concessions will in no case make the outstandings in the borrowers account negative.
(f) The share capital contribution of the loanee will be adjusted against his loan account after taking borrowers consent.
(g) In case any borrower fails to pay the agreed amounts, the amount paid/collected by the Bank will be adjusted against interest dues first and then against the principle thereby revoking the OTS given earlier.
(h) The bank will design suitable documentation covering the above points and enter fresh agreements while sanctioning the OTS.
13. The reconstruction scheme inter alia contains the method and manner of collection of advances. It envisages two options to the borrowers who opt for OTS package. First option is that the borrower pays the entire crystallised amount in one lumpsum during the currency of OTS scheme. In the second option, the borrower is required to pay 20% upfront and balance 80% of crystallised amount within a period of six months. The crystallised amount is arrived at {see Para 5(a)} by recalculating simple interest from the date of disbursement to the date of reconstruction at 18% per annum simple interest after adjusting repayments made by the borrower. If a borrower opts for first option, he will get a further rebate of 25% on the interest component in the crystallised amount, whereas the borrower who opts for second option gets 10% rebate on the interest. The scheme also stipulates that if the borrower who opts for OTS package, fails to pay agreed amount/instalments, amount paid will be adjusted against interest dues first and then against principal thereby revoking OTS facility given to the borrower. Yet another facility contemplated is that with their consent, the share capital contribution of borrower can be adjusted against the loan account.
14. What should happen to the borrowers of the bank who are not willing to give their willingness either for first option or second option ? Para 5(d) gives a limited benefit to the borrower byway of rescheduling the account payable in 35 monthly installments which are carrying interest at 15% per annum. This is third option available to all the borrowers who opt or apply to the bank. Those people who accept third option are also subject to other conditions namely revocation of OTS if they fail to adhere to payment schedule.
15. After reconstruction scheme was notified, person-in-charge of the bank by an advertisement/notice published in the newspapers informed all the borrowers about OTS package and called upon them to avail the opportunity within sixty days from 15.3.2003. The borrowers were advised to contact the respective Branch Managers for further details in the matter and it was made clear that OTS scheme would expire on 13.5.2003. All the petitioners immediately sent communications opting for third option. They also sent reminders to third respondent. In the meanwhile, Bank obtained Certificate for Recovery from the Joint Registrar and initiated execution proceedings under Section 70 of the Act by attaching properties of borrowers and properties of the guarantors and issuing notifications for sale of properties by public auction. The petitioners requested the officials to keep the execution proceedings on hold in view of the pendency of OTS proposals made by them.
16. It appears the Chairman of the Bank addressed letter dated 12.9.2003 seeking certain clarifications with regard to recovery of loans from defaulting borrowers against whom awards/certificates for recovery were obtained by the bank and also with regard to borrowers who opt for third option. While the matter was pending before the Government on this aspect, the Commissioner of Co-operation by letter dated 13.10.2003 addressed fourth respondent informing that all the borrowers irrespective of the fact that whether certificates of recovery under Section 71 of the Act are issued against them are entitled to opt for OTS package and that execution proceedings filed against borrowers can be proceeded only when the borrower fails to discharge his obligations under OTS package. Be that as it is, the letter of the Charminar Bank dated 12.9.2003 referred to hereinabove was discussed in a meeting of officials of RBI, the Commissioner of Co-operation, Person-in-charge Committee of the bank, and the members of Implementation and Managing Committee. Government thereafter issued G.O. Rt. No. 877, Agriculture and Co-operation (Co-op.III) Department, dated 14.10.2003 by way of clarification to the scheme formulated in G.O. Ms. No. 4 dated 27.2.2003.
17. Under G.O. Rt. No. 877, time fpr applying to the bank exercising options 1 and 2 was extended upto 31.10.2003. For availing third option, the onus lies on the borrower, in that borrower has to apply to bank in the format prescribed by the bank along with necessary documentation for availing third option. If any borrower fails to apply for third option before 31.10.2003, such borrower shall not be eligible for any benefits under the said package and the bank will be entitled to proceed to recover the dues as per the Act. Yet another clarification was given that if an Award has already been passed against the borrower, he shall not be entitled to opt for OTS package and bank will be at liberty to proceed with recovery of dues based on the award. In case recovery proceedings are pending before any authority for adjudication, the bank and borrower will have to move appropriate authority to issue an appropriate award in terms of the option exercised by the defaulting borrower.
18. After GoAP issued G.O. Rt. No. 877 dated 14.10.2003, the Bank addressed letters to the petitioners except to the petitioner in W.P. No. 23681 of 2003, advising petitioners to appear before the Committee at Administrative Office with Certificate of Registration of the firm, Income Tax returns since the date of availing of loan from the bank and audited balance sheet of petitioner for the period covered by loan. All the petitioners gave reply dated 28.11.2003 to the Chief Recovery Officer of the Bank informing that the petitioners have right to avail the OTS facility under G.O. Ms. No. 4 dated 27.2.2003 and that subsequent orders of the Government vide G.O. Rt. No. 877 dated 14.10.2003 is only prospective and cannot take away the right of petitioners and that as per Government orders, production of records like IT. returns, registration certificates etc., is not required. Petitioners then filed present writ petitions challenging various Certificates for Recovery issued by fourth respondent mainly contending that clarifications issued by the Government in G.O. Rt. No. 877 dated 14.10.2003 have no statutory force and being contrary to the statutory scheme framed under Section 115-B of the Act, are not enforceable. They also filed interlocutory applications seeking a direction to the Bank to forthwith pass orders on the application of the petitioner for OTS in accordance with G.O. Ms. No. 4 dated 27.2.2003 and a direction to the bank not to take any coercive steps in terms of the ex parte award passed by fourth respondent. The matters came up on different dates. This Court directed the learned Government Pleader as well as learned Counsel for Charminar Bank to get instructions in the matter. When W.P. No. 23681 of 2003 came up before me for preliminary hearing, I directed to post all the writ petitions on 3.12.2003. At the admission stage itself, the first respondent and third respondent bank filed counter affidavits. Petitioners also filed a common reply affidavit. Therefore the matters were heard at length.
Government case and case of Charminar Bank
19. In the counter-affidavit filed by the first respondent, it is stated that as per the scheme of reconstruction, OTS revival package is meant only for bona fide borrowers. The intention is to allow third option to the borrowers with good intentions and the scheme never intended to extend the facility to such of the borrowers in whose cases Court decree/award has already been passed. In the case of borrowers with doubtful intentions, by executing decree instantaneously recovery can be effected. It is also stated in the counter that the category of borrowers with questionable intentions where awards are passed, ought not to be given option of OTS whereunder they may opt for an option of extended payment who should put the interest of the bank in peril and therefore instant realization of the amount due is essential for revival of the bank. Onus lies upon the borrower to qualify for OTS. Many of the borrowers may simply file a paper opting for third option computing net payable amounts as per the scheme. Petitioners never approached the Bank for statement of account and confirmation of balance sheet as provided. They have failed to substantially comply with OTS scheme and they are putting a false claim that they are eligible for OTS scheme. Their statements cannot be accepted on their face value and they shall be put to strict verification. There is no necessity to consider such claims not backed by statement of account and confirmation of balances furnished as valid claim under OTS. The clarification issued in G.O. Rt. No. 877 dated 14.10.2003 is in accordance with the guidelines issued by RBI vide their letter dated 12.2.2003 and therefore OTS is not applicable to cases where award is passed. A reference to Clause 9(i) of the said letter is made to the effect that where awards are passed and if OTS is to be extended, it has to be extended with the sanction of competent authority and that extension of OTS does not confer any right on the borrower against whom award is passed. It can be made applicable with the consent of parties with approval of competent authority who passes award/certificate for recovery. It is also urged that petitioners obtained loan by fraud and malfeasance and as per RBI guidelines, they are debarred from availing OTS facility. To discourage wilful defaulters and non-serious applicants for third option and so as to effect quick recovery, Government issued clarification in G.O. Rt. No. 877 dated 14.10.2003.
20. The Charminar Co-operative Bank filed separate counter opposing the writ petitions. It is stated that all the petitioners availed loans, but failed to pay any amount towards repayment and that even before the announcement of reconstruction scheme vide G.O. Ms. No. 4 dated 27.2.2003, the accounts of the petitioners were declared as non-performing assets as the petitioners have defaulted in repayment of loans sanctioned to them. It is also stated that in W.P. No. 23480 of 2003 - M/s Ram Software, proceedings were initiated prior to introduction of OTS on 12.8.2003. The petitioners were duly served with notices and fourth respondent passed orders as the petitioners did not appear inspite of receiving notices. Petitioners are trying to prolong the litigation so as to avoid repayment. Petitioners have an effective alternative remedy under the Act and therefore the writ petitions are not maintainable and that any further delay in recovering the dues from the petitioners will jeopardize the interest of one lakh depositors whose money has been swindled away by the petitioners.
21. Adverting to the reconstruction scheme, it is stated that Section 115B was inserted mainly for the purpose of extending facility by DICGC to Co-operative Banks so as to safeguard interest of depositors and it is not intended to help chronic defaulters. The period of 35 months granted to those borrowers who exercised third option is too long, the committee of persons-in-charge proposed to the GoAP to reduce number of installments. The Government considered the request made by the bank and issued G.O. Ms. No. 117 Agriculture and Co-operation (Co-op.III) Department, dated 21.5.2003. Petitioners made only an application without enclosing the statement of account and without payment towards first installment and therefore the petitioners are not entitled for any relief in the writ petitions. In implementing the reconstruction scheme and with regard to collection of advances, several problems crept up and therefore the Bank sought for clarification. A meeting of RBI authorities, Chairman of the Expert Committee of the Bank on revival of sick urban Co-operative Banks in Andhra Pradesh, the Registrar of Co-operative Societies and representatives of the bank as well as Chartered Accountants attached to Charminar, Vasavi and Prudential Cooperative Banks discussed the proposals and made recommendations to the State Government which resulted in issuing G.O. Rt. No. 877 dated 14,10.2003. As per their clarification, the OTS package under the reconstruction scheme cannot be extended to chronic defaulters against whom awards have been passed. As the petitioners suffered awards, they are not entitled to claim any benefits under OTS package.
Submissions of the learned Counsel
22. Sri P. Venugopal, learned Counsel for Petitioner in all the writ petitions submits that G.O. Ms. No. 4 dated 27.2.2003 approving reconstruction scheme was issued after obtaining prior approval of the Reserve Bank of India. G.O. Rt. No. 877 dated 14.10.2003 which is issued by way of clarification drastically deviates from OTS package under G.O. Ms. No. 4 dated 27.2.2003. As previous sanction of RBI in writing was not obtained, G.O. Rt. No. 877 has to be held invalid. As the same having been issued on 14.10.2003 by which date the applications made by petitioners for OTS were pending in the bank, the G.O. is only prospective and cannot be applied retrospectively. Secondly the learned Counsel would urge that when the applications for OTS are pending, the fourth respondent could not have passed ex parte awards against petitioners especially when it was brought to the notice of Joint Registrar that OTS applications are pending with the bank. Lastly, the learned Counsel would submit that reconstruction scheme as sanctioned by the RBI does not require a borrower to produce registration certificate, balance sheet and income tax returns and therefore any insistence upon these documents by the bank is unauthorized and unwarranted especially when the petitioners have made substantial payments to the bank even while writ petitions are pending before this Court.
23. The learned Government Pleader for Agriculture and Co-operation Ms. B. Vijayalakshmi submits that as the fourth respondent already passed awards against petitioners, they are not entitled to claim the benefit under OTS scheme. She supports G.O. Rt. No. 877 stating the same is the result of deliberations in a meeting consisting of various authorities including RBI officials and being in the nature of clarification in G.O. Ms. No. 4 dated 27.2.2003 it is valid and enforceable.
24. The learned Standing Counsel for Charminar Bank Sri P.S. Rajasekhar submits that petitioner firms are not in existence and hence they are not entitled for OTS package as the RBI guidelines disqualify the borrowers who suffered decrees from availing OTS facility. Chapter XIII-A of the Act inserted by A.P. Act 10 of 1970 is not intended to benefit the defaulted borrowers and therefore the petitioners cannot rely on the same to invalidate G.O. Rt. No. 877, the said G.O. is being by way of clarification, no previous sanction of RBI is required. Alternatively he submits that the petitioners applications for OTS were considered and they were asked to appear before the Committee with all necessary documents. Without availing the facility, they gave reply raising unsustainable objections and therefore OTS facility cannot be extended to them. On 2.12.2003, the General Manager and Assistant General Manager submitted a report to the Bank to the effect that petitioners are not in a position to repay the loan amount and therefore the bank has discretion to accept or not to accept the request/option exercised by the borrower under OTS package. He would also urge that by its very nature, OTS package is available for the borrowers for settlement and realization of a debt due, but when the Registrar has issued a Certificate for Recovery or passed award, there is a crystallization of amount manifesting as an executable decree. Therefore, there is a justification for denying OTS package to those borrowers against whom awards have been passed by the competent authority.
Points for consideration:
1. What is the true scope and effect of reconstruction scheme insofar as collection of advances is concerned as per G.O. Ms. No. 4 Agriculture and Co-operation (Co-op.III) Department, dated 27.2.2003 ?
2. Whether the award/certificate for recovery issued by fourth respondent is illegal and unenforceable ?In Re-point No. 1
What is the true scope and effect of reconstruction scheme insofar as collection of advances is concerned as per G. O. Ms. No. 4 Agriculture and Cooperation (Co-op.III) Department, dated 27.2.2003.
This point for consideration may be considered under different Sub-headings; namely
(i) Reconstruction scheme under Section 115B of theAct.
(ii) OTS guidelines issued by RBI.
(iii) the effect of subsequent clarification.
(i) Reconstruction scheme under Section 115-B of the Act.
The Government of Andhra Pradesh notified a scheme of reconstruction of Charminar Co-operative Urban Bank Limited in exercise of power under Section 115-B(i) of the Act. The said provision appearing in Chapter XIII-A of the Act was inserted by Andhra Pradesh Co-operative Societies (Amendment) Act, 1970 inter alia with an object of giving coverage to the depositors of Co-operative Banks under DICGC Act, 1969. The Section reads as under:
115-B. Special provisions applicable to eligible Co-operative Banks :--Notwithstanding anything in this Act, the following provisions shall apply to an eligible Co-operative Bank, namely:
(i) an order for the winding up, or an order sanctioning a scheme of compromise or arrangement or of amalgamation or reconstruction, of the bank may be made under the provisions of this Act only with the previous sanction in writing of the Reserve Bank.
25. A reading of the above provision would show that an order winding up, an order of scheme of compromise, or arrangement or amalgamation or reconstruction of the bank made under the provisions of Co-operative Societies Act has to be passed only after obtaining previous sanction of Reserve Bank of India. The word 'sanction' is used in the sense that previous approval of RBI is required before the Government or any competent authority orders winding up or sanctions a reconstruction scheme. Under Section 115-B(iii) the committee of management or managing body can also be superceded if it is so required by RBI while granting approval for reconstruction scheme. A Co-operative bank is registered under the Co-operative Societies Act or Multi-State Co-operative Societies Act (Central Act) or Mutually Aided Co-operative Societies Act. It is like any Co-operative Society. A Co-operative Bank is governed by all the provisions of Co-operative Societies Act and if it is advancing loans for the purposes of land improvement, erection of buildings, purchase or acquisition of agricultural lands etc., is also covered by Chapter-XIII of the Act. Prima facie though Co-operative Banks are not scheduled banks as defined in Section 2(e) of the Reserve Bank of India Act, 1934, as these Co-operative Banks carry on banking business, every Co-operative Bank requires a licence under Section 22 of the Banking Regulation Act, 1949 (BR Act' for brevity). All the Co-operative Banks are subject to regulatory powers of RBI including the provisions contained in Sections 35 and 35-A of BR Act. To my mind, it is for this reason that while State of A.P. brought the depositors of Co-operative Banks under the cover of DICGC, the Government thought it fit to make previous sanction of RBI as an essential condition before an order of winding up or before a scheme is sanctioned.
26. Further, it may be reiterated that the power conferred under the State Government under Sub-section (1) of Section 115-B of the Act is the power not only to allow the Co-operative Bank to accept the offer of a buyer for OTS, but also power covering the entire gamut of reconstruction of a bank whose net worth is negative. Before reverting to the reconstruction scheme vide G.O. Ms. No. 4, it is necessary to deal yet another relevant aspect namely regulatory power of the RBI in relation to a Co-operative Bank registered either under the State enactments or Central Act. Though a Co-operative Bank is not a scheduled bank as per the provisions of Banking Regulation Act, 1949 by reason of provisions of Sections 35 and 35-A of the B.R. Act as well as Section 115-B of the A.P. Act, the authority and power of RBI extends to regulating business of a Co-operative Bank as well. Indeed, no Co-operative Bank can commence banking transactions or banking business as defined in B.R. Act without there being a licence granted by RBI under Section 22 of BR Act.
27. Section 35 of the BR Act empowers RBI to cause inspection of any banking company and cause scrutiny of affairs of the banking company, and its books of accounts. Explanation to Section 35 of BR Act deals with expression 'banking company' and includes a banking company incorporated outside India and a banking company incorporated in India. By reason of the inclusive definition, it is reasonable to conclude that every Co-operative bank is also a banking company for the purpose of Sections 35 and 35-A of the BR Act. I may however hasten to add that this conclusion may not be misunderstood as holding that all Co-operative banks are scheduled banks for the purpose of RBI and BR Act. This question has to be dealt with in appropriate case and it is not necessary to deal with this case here especially when nobody denies that both under Section 115-B of the A.P. Act as well as Section 35-A of the BR Act, it is competent for RBI to issue statutory regulations and guidelines for controlling and regulating the banking business undertaken by the Corporation. At this stage, I may refer to Section 35-A of B.R. Act.
Section 35-A Power of the Reserve Bank to give directions :--(1) Where the Reserve Bank is satisfied that--
(a) in the public interest; or (aa) in the interest of banking policy; or
(b) to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company ; or
(c) to secure the proper management of any banking company generally, it is necessary to issue directions to banking companies generally or to any banking company in particular, it may, from time to time, issue such directions as it deems fit, and the banking companies or the banking company, as the case may be, shall be bound to comply with such directions.
(2) The Reserve Bank may, on representation made to it or on its own motion, modify or cancel any direction issued under Sub-section (1) and in so modifying or cancelling any direction may impose such conditions as it thinks fit, subject to which the modification or cancellation shall have effect.
28. Section 35-A empowers RBI to issue such directions as it may deem fit to secure proper management of any banking company and to prevent the affairs of any banking company being conducted in a manner detrimental to the interest of depositors or in a manner prejudicial to the interest of the banking company. It is also competent for the RBI to issue general directions in public interest or in the interest of banking policy. All the directions issued by the RBI will be valid and binding on all the banking companies, unless and until guidelines or directions are modified or cancelled by RBI in accordance with Sub-section (2) of Section 35-A.
29. After referring to Section 115-B ofthe Act and Sections 35 and 35-A of the BR Act, the scope of reconstruction scheme may be noticed yet again. As seen above, the reconstruction scheme deals with the method of realizing Rs. 186.02 crores amount from DICGC, the method of payments to the depositors below Rs. 1.00 lakh, directions to reinvest deposits over and above Rs. 1.00 lakh, modalities for regulating Savings Account/Current Account/Recurring Accounts, restructuring of the board of management and policy guidelines for collection of advances. The reconstruction also provides 60% of the fresh deposits to be kept in the State/Central Government securities and the balance shall be utilized for renewal of advances. Thus, the collection of advances as contained in Para 5 of the scheme is one of many aspects of the reconstruction scheme. Para 5 has already been extracted. Para 5(h) mandates the bank to design suitable accommodation and empowers to enter into fresh agreement while sanctioning QTS. The word "sanctioning the OTS" appearing in Para 5(b) would show that every borrower is not entitled to seek the benefit of OTS as a right. The term "sanction" is defined in 'CORPUS JURIS SECUNDUM' (American Law Book Company; 1952 edn., Vol.78 : p.579) which reads as under;
Sanction As a noun, and in the original sense of the word, "sanction" is defined as meaning a penalty or punishment provided as a means of enforcing obedience to a law; and, in a more general sense, a conditional evil annexed to a law to produce obedience to that law. In a still wider sense, "sanction" may mean an authorization of anything, and it may convey the idea of authority, or of sacredness, or even of weight.
The verb "sanction" is defined as meaning to assent, concur, confirm, or ratify. It has been distinguished from "authorize".
30. An option given by borrower has to be placed before proper authority which has to authorize or approve the acceptance of such OTS offer. The scheme does not confer any right on any borrower to compel the bank to accept Though Para 5 of the reconstruction scheme broadly deals with the policy for OTS, it does not give any guidelines. It only enumerates options available to a defaulting borrower, by which a borrower proposes for novation of loan contract. Such novation, needless to say, can come into existence only when bank accepts the proposal. Whether this area is covered by any instructions by RBI ?
O.T.S. Guidelines issued by R.B.I.
31. It is the specific plea of the Government that the RBI issued separate guidelines covering OTS package vide their reference No. BPD.1298/09.140 (OTS)/2002-03 dated 12.2.2003. These guidelines alone cover the OTS scheme whenever action is taken by the bank in accordance with Para 5 of the reconstruction scheme. Para 5 of the reconstruction scheme and OTS guidelines read together furnish the details of OTS package. None can be ignored and both of them should be given due importance while the bank takes action on a proposal made by a borrower pursuant to the advertisement issued by the bank. Para 5 is in the nature of enabling provision under which the bank can consider the proposal keeping in view the guidelines issued for OTS. As noticed hereinabove, under Section 35-A of the B.R. Act, it is competent for the RBI to issue any directions in public interest and in my considered opinion the OTS guidelines issued by RBI on 12.2.2003 fall within the ambit of Section 35-A of the B.R. Act.
32. The Commissioner for Co-operation, second respondent by proceedings bearing Rc.No. 3484/2002/UB-I dated 15.4.2003 ordered as follows:
Sub:--Revised guidelines for compromise settlement of chronic non-performing assets of Urban Co-operative Banks -Guidelines issued by Reserve Bank -Communicated to Urban Co-operative Banks in the State - Reg.
Ref:--1. This Office Rc.No. 3481/2002/UB-I dated 7.8.2002.
2. Reserve Bank of India Reference No. BPD. 1298/09.140.00 (OTS)/2002-03 dated Feb 12, 2003.
3. Government of Andhra Pradesh, Agriculture and Co-operation Department Memo No. 4836/Co-op.III/1/2003-1, dated 8.4.2003.
In the reference first cited above the guidelines of the Reserve Bank of India for One Time Settlement of non-performing assets as on 31.3.1998 were communicated to the Urban Co-operative Banks in the State for implementation.
In the reference second cited above the Reserve bank of India have communicated revised guidelines for compromise settlement of chronic non-performing assets of Urban Co-operative Banks. The revised guidelines will cover non-performing assets as on 31st March, 2000.
In the reference 3rd cited above the Government of Andhra Pradesh have communicated these revised guidelines of Reserve Bank for implementation by the Urban Co-operative Banks in the State.
Accordingly, a copy of guidelines of Reserve Bank of India on the subject received vide reference 2nd cited are hereby communicated to all the Co-operative Urban Banks in the State. The Urban Co-operative Banks in the State are hereby informed that implementation of these guidelines for One Time Settlement of non-performing assets is optional and a decision in this regard should be taken by the individual itself. The banks are further informed that while implementing one time settlement under this Scheme the banks shall strictly follow the guidelines of the Reserve Bank and shall implement the scheme without discrimination among the borrowers.
The last date for receipt of applications from borrowers under the scheme would be as at the close of business on 16th June 2003 and the processing of the application received under these guidelines should be completed by 31st October 2003.
33. The above communication was addressed to all Urban Co-operative Banks in Andhra Pradesh and all the Liquidators of such banks. The guidelines issued by RBI for OTS are annexed to the above proceedings of the second respondent. There are nine guidelines issued by RBI. As per these guidelines, revised OTS guidelines apply to all Non-Performing Assets (NPAs) which became due as on 31.3.2000 with outstanding balance of Rs. 10.00 crores and below on the cut off date. NPAs classified as sub-standard as on 31.3.2000, which become doubtful, subsequently are also covered under OTS guidelines. Para 1(c) specifically excludes six types of loans/debts from the operation of OTS guidelines. The same are extracted hereunder:
(c) The following categories of loans will not be covered by the scheme.
(i) Cases of willful default, frauds and malfeasance.
(ii) Loans with tie-up arrangement for recovery (e.g. loans availed by salary earners).
(iii) Loans availed of or guaranteed by Directors or by close relatives of Directors or by firms/companies/institutions in which the Directors are interested or by ex-Directors of respective Urban Cooperative Banks.
(iv) Loans guaranteed by Government (including cases where Government guarantee has been invoked but not honoured by the Government).
(v) Loans due from Government Departments/Undertakings.
(vi) Loans under Government directed programmes.
34. Para 9 of the guidelines is also important and reads as under:
General
(i) In cases of NPAs where arbitration/execution petitions have been filed and/or decree obtained and recovery certificates issued, the settlement as per these guidelines will be with the consent of the competent authority.
(ii) A long term multi-pronged and effective NPA management strategy should be put in place in each institution to arrest the incidence of fresh NPAs.
(iii) The waiver that may be allowed by the banks in terms of these guidelines will have to be on their own strength and no financial support from Government or RBI would be extended.
(iv) The banks should submit a report on the progress in recovery of NPAs under the guidelines every quarter to the Board of Directors.
(v) A copy of the final guidelines issued by the State Government may be sent to us for our information and record.
35. Para 2 provides for settlement formula. Paras 3, 4 and 5 provide for competent authority and the method and manner of considering the proposals for OTS made by the borrowers. Para 3 is to the effect that OTS scheme/guidelines are to be approved by the Board of Directors of the Bank concerned under the provisions of Co-operative Societies Act as well as administrative guidelines issued by the Registrar of Co-operative Societies. A Settlement Advisory Committee ('SAC' for brevity) should be constituted by the banks to review all applications received and recommend eligible cases to competent authority for sanction. Para 3 may be read at this stage:
Competent Authority The scheme is to be approved by the Board of Directors of the banks concerned within the provisions of (he Co-operative Societies Act/Rules/Notification/Administrative Guidelines issued by the Registrar of Cooperative Societies concerned. A Settlement Advisory Committee should be constituted by the banks to review all applications received and to recommend eligible cases to the Competent Authority for sanction. The powers to sanction waiver/remission of penal interest/charges and to take all related decisions may be vested with the Board within the provisions of the Cooperative Societies Acts/Rules/Notifications/Administrative Guidelines issued by the RCS concerned.
36. The Board of Directors which has to constitute SAC may also draw broad guidelines and procedure for functioning of SAC. The SAC is required to follow the guidelines for compromise/settlement of all NPAs without discrimination among the borrowers. After SAC reviews each proposal and submits, the Board may then take a decision whether or not to accept the OTS proposal. In case the borrowers do not come forward for OTS, the guidelines envisage filing of suits for recovery of dues,
37. As seen from Para l(c) read with Para 9, the OTS guidelines cannot be applied in cases of NPAs where arbitration/execution petitions have been filed or where decrees or certificates for recovery have been obtained by the bank. In case such loans are to be settled or compromised, the same can be done only with the consent of the competent authority i.e., the Board of Directors or another body discharging the functions of Board of Directors of the Bank. This would clinchingly show that the method of collection of dues laid down in Para 5 of reconstruction scheme (G.O. Ms. No. 4) is not automatic and the same does not confer any right. The guidelines issued by RBI under Section 35-A of B.R. Act require a review of OTS proposal by an SAC and acceptance of the same by the competent authority. Further, cases of willful default, frauds and malfeasance, do not come under OTS guidelines unless it is consented to by the competent authority. In view of Section 35 of B.R. Act and also having regard to the language of Section 115-B of the Act, it is not possible to accept the submission of the learned Counsel for petitioners that all the petitioners are entitled to be given the benefit of OTS scheme. The point is answered accordingly against the petitioners and in favour of respondents.
Effect of Clarification
38. There is yet another aspect which has been argued by the rival Counsel i.e., in relation to G.O. Rt. No. 877 dated 14.10.2003. Though the learned Government Pleader and the Counsel for Charminar Bank vehemently contended that G.O. Rt. No. 877 is by way of a clarification pursuant to a meeting of officials including officials of RBI and therefore the same does not suffer from any vice, I am not able to accept the same. As held by me, Para 5 forms part of statutory reconstruction scheme giving broad modalities/guidelines for collection of dues from the borrowers and therefore the same cannot be altered or changed or modified without prior sanction of RBI as required under Section 115-B of the Act. I may further hasten to add that Para 5 of the reconstruction scheme (G.O. Ms. No. 4) and the revised guidelines for OTS issued by RBI are both statutory in nature and they have to be given due importance in dealing with OTS applications. Neither of them can be modified or altered without proper consideration by RBI. The fact that in the meeting which preceded the issuance of G.O. Rt. No. 877, the presence of RBI officials is of no legal consequence, as admittedly prior sanction of RBI is not obtained. Further, whether or not G.O. Rt. No. 877 can be enforced, by reason of second respondent's communication dated 15.4.2003 to all the Urban Banks enclosing the revised guidelines of RBI for OTS, the Charminar Bank is bound by the OTS guidelines. Proposals made by the petitioners automatically cannot result in novation of loan contract. All the proposals have to be submitted, if the petitioners are eligible for OTS and Bank has to review all matters including the question whether petitioners who submitted OTS proposals qualify for being given the benefit of OTS package.
39. The other submission by the learned Counsel for Petitioners that under reconstruction scheme vide G.O. Ms. No. 4, the bank is not entitled to ask for particulars like registration, income tax returns and balance sheet is misconceived.
40. Under Para 5(h) of the reconstruction scheme vide G.O. Ms. No. 4, the bank is empowered to sanction OTS and before doing so, design suitable documentation to cover the points in Para 5(a)(ii) to Para 5(g). Further, the revised OTS guidelines issued by RBI vide their letter dated 12.2.2003, as discussed hereinabove, envisaged the constitution of SAC which shall review all applications received and recommend eligible cases to the Board of Directors (competent authority). Under guideline 5(ii), the Board of Directors is entitled to draw broad guidelines and procedure for functioning of SAC. SAC has to consider OTS applications in accordance with guidelines issued by the competent authority and make a recommendation to the Board for approval of OTS proposal for acceptance. One fails to understand how SAC can evaluate OTS proposals without income tax returns and balance sheet. Therefore, it would be futile to contend that the bank is not entitled to require the petitioners to furnish the balance sheets, I.T. returns, registration certificates etc. Be it also noted that as per OTS scheme, the guidelines will apply to all NPAs which became doubtful as on 31.3.2000. How could anybody found whether loan account will NPAs are not entitled without looking into balance sheet. Therefore, there is no infirmity in the method adopted by the bank. In the counter-affidavit filed by the Government as well as the bank, allegations have been made with regard to certain aspects of impropriety in sanctioning loans to these petitioners. Therefore, the bank is justified in asking the petitioners to furnish the documents like balance sheet, registration certificate etc. The same is in accordance with Para 5(h) of reconstruction scheme read with OTS guidelines issued by RBI.
In Re-point No. 2:
Whether the award/certificate for recovery issued by fourth respondent is illegal and unenforceable ?
41. The Act provides for recover of debts by a Co-operative Society, The debt may be recovered by the society by approaching the Registrar/Arbitrator under Section 61 read with Section 62, or approaching the Registrar for certificate for recovery under Section 71. Under Sub-section (4) of Section 62, a decision or order passed by the Registrar/Arbitrator under Section 62 subject to provisions of Section 76 shall be final. Similarly the certificate for recovery issued under Section 71 or 101 attain finality subject to Section 76 of the Act. Section 76 of the Act is to the effect that any person or society aggrieved by any decision or order made inter alia under Section 71 may file appeal before the Tribunal constituted under Section 75 of the Act. The Tribunal is also empowered to pass interim orders pending decision on the appeal and the Tribunal is governed by the provisions of the Act and the A.P. Co-operative Tribunal (Procedure) Rules, 1994. Thus, the Act has provided an effective efficacious remedy for a person aggrieved by the certificate for recovery issued by the Registrar under Section 71(1) of the Act.
42. It is well settled that when there is an effective alternative remedy, ordinarily the jurisdiction of this Court under Article 226 of the Constitution cannot be invoked. Indeed, with reference to provisions of the Act, this Court in Nadimandalam Veeraiah v. Secretary, Primary Agricultural Co-operative Society Limited, Pulikundram, and A. Vemanaidu v. Erracheruvupalle Primary Agricultural Cooperative Society, , has held that the award or certificate for recovery passed/issued by the Registrar under the Act cannot be challenged in a writ petition and the persons aggrieved may avail the remedy under Section 76 of the Act. Further, except petitioner in W.P.No. 23290 of 2003, petitioners in other writ petitions did not even appear before the Registrar when the matters were posted for filing counter and hearing. Nothing prevented them from approaching the said Registrar to set aside the ex parte award and contest the same. The petitioners have not availed the remedies available and straightaway approached this Court. In the pleadings or in the submissions of the learned Counsel for petitioners, no objection is raised to the award passed by the Registrar. Therefore, this Court is not inclined to go into the merits of the Award. Liberty is reserved to the petitioners to either approach the Registrar to set aside the ex parte award or to file appeals before the A.P. Co-operative Tribunal, Hyderabad. As and when such appeals are filed, the learned Tribunal may dispose of the appeals expeditiously, if possible, within a period of eight weeks from the date of presentation of appeals. In these writ petitions, no relief can be granted to the petitioners.
43. The upshot of above discussion and summary of findings may be given as under:
(i) Having regard to the provisions of Section 115-B of A.P. Co-operative Societies Act, 1964 and Section 35-A of Banking Regulation Act, 1949, the reconstruction scheme for Charminar Co-operate Urban Bank Limited and the revised guidelines for One Time Settlement issued by Reserve Bank of India, it must be held that though the borrower whose loan has become non-performing asset as on 31.3.2000, is given a limited right of applying to the bank proposing OTS, such borrower has no right to compel the bank to accept the OTS proposal;
(ii) Para 5(h) of reconstruction scheme vide G.O. Ms. No. 4 dated 27.2.2003 and guidelines Nos.3, 4 and 5 would make it abundantly clear that the proposal made by a borrower for OTS has to be approved by the Board of Directors of the bank which is the competent authority as per OTS guidelines;
(iii) While considering the recommendation made by the Settlement Advisory Committee, it is open to the competent authority to reject OTS proposal of a borrower if the loan obtained by him is not NPA or falls in any of the categories mentioned under guideline No. 1(c) and guideline No. 9;
(iv) For the purpose of considering OTS proposal by the SAC and the competent authority, it is always open for the bank to seek necessary documents like Income Tax returns and balance sheets for the purpose of determining whether it is NPA as on 31.3.2000 and to see whether the borrower opting for OTS has capacity to discharge his obligations either under option Nos. I, II or III;
(v) In the case of a borrower who suffered an arbitration award, or a certificate for recovery, the settlement under OTS guidelines should be with the consent of Board of Directors of the Bank. If the Board of Directors, so advised, can always consider OTS proposal of a borrower who suffered a decree, award or certificate for recovery passed in favour of the bank;
(vi) The mere proposal for OTS made by borrower or pendency of such proposal before SAC or Board of Directors does not act as a bar or prohibition for executing decree, award or certificate for recovery. If execution proceedings are initiated, it is always open to the borrower to avail remedies under Sub-rule (5) or Sub-rule (21) of Rule 52 of A.P. Cooperative Societies Rules 1964.
(vii) It is also open to the borrower to approach the A.P. Co-operative Tribunal by filing appeal under Section 76 of the Act and writ petition is not a proper remedy and it is not open to invoke jurisdiction under Article 226 of the Constitution in view of the effective efficacious alternative remedy.
44. In view of the above findings and conclusions, petitioners are not entitled to any relief in these writ petitions. Giving liberty to the petitioners to avail the remedies as noticed hereinabove, the writ petitions are dismissed without there being any order as to costs.