SBI Is State Instrumentality, Writ Petition Maintainable Even In Disputes Pertaining To Contract For Loan Transaction: Karnataka High Court

The Karnataka High Court recently set aside an endorsement issued by the State Bank of India to a partnership firm, stopping the release of loan amount which was sanctioned and partly disbursed.While the bank resisted the writ petition stating the loan transaction was in the nature of a 'private contract', a single judge bench of Justice Krishna S Dixit observed,“The respondent-bank being an instrumentality of the State under Article 12 of the Constitution, even in matters like this, writ remedy can be granted to the aggrieved...A banker who answers description of State under Article 12 of the Constitution cannot act like a private lender; its actions have to be animated with reason & justice, which factors are militantly absent in the impugned endorsement/notice. Therefore the same is liable to be invalidated.”The firm was registered in 2010 as a partnership and after retirement of 2nd respondent (P Siva Priya) from the firm, it was reconstituted in July 2021; to the vacancy of retiring partner, her husband (M Chandrashekhar) i.e., the 2nd petitioner was inducted.The firm was sanctioned a loan of Rs.40 crore by SBI and about a sum of Rs. 3 crore was released. However, at this stage, on the complaint of 2nd respondent alleging fraud by her husband, the bank stopped release of further amount by virtue of the impugned endorsement.The bank opposed the plea contending that the 2nd petitioner played fraud on his spouse to obtain her retirement from the Firm. Fraud vitiates anything & everything, in that connection the subject civil suit is pending; therefore the impugned action of the respondent bank cannot be faltered, it was contended. It was also argued that the decision to stop releasing of the sanctioned loan has 'administrative characteristics' and does not merit a deeper examination by a Writ Court, and that the petitioner can avail alternate remedy by approaching the Banking Ombudsman.FindingsAt the outset, the Court refused to accept the contention that the bank's decision to stop releasing of the sanctioned loan has administrative characteristics.It pointed that the field of banking business is occupied by several legislations and the Rules/Regulations promulgated thereunder. The RBI is a watchdog of finance & economy of the nation, apart from being the prime banking institution of the country; it is conferred with the authority of issuing binding directions inter alia to the Public Sector Banks. Thus it held it is not a simple case of a private loan.“What the Court has to see is the legal injury and the admissibility of redressal thereto in law. Both are visible to the naked eye. A Writ Court cannot turn away an injured litigant by quoting some jurisprudential theories; it is there to do justice to the aggrieved, of course in accordance with law,” it observed.Court also noted that the part of the sanction loan had been already released to the petitioner based on which the latter had undertaken a huge construction project. Thus it said if the sanction is abruptly rescinded, the same would not augur well in public law.Further it noted that a civil suit is pending as to the fraud allegedly perpetrated by the 2nd petitioner on the 2nd respondent and it is nobody’s case that all other partners were hand in glove with the 2nd petitioner in perpetrating the alleged fraud. “That being the admitted position, the bank is not justified in stopping the release of sanctioned loan amount half way through, already a part thereof having been handed to the Firm for the ongoing construction project in question,” it said.Accordingly, it allowed the petition and directed the bank to act upon the Loan Sanction Arrangement.Case Title: M/s Legal Property & ANR And Chief Manager, State Bank of India & ANRCase No: WP 11203/2023Citation: 2023 LiveLaw (Kar) 298Date of Order: 31-07-2023Appearance: Senior Advocate K N Phaneendra a/w Advocate Leela P for petitioner.Advocate Sandeep K for Advocate Jai Prakash Rao for R1.Advocate Y R Sadashiva Reddy for Advocate Rahul S Reddy for R2.Click Here To Read Order

SBI Is State Instrumentality, Writ Petition Maintainable Even In Disputes Pertaining To Contract For Loan Transaction: Karnataka High Court

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