28 July 2022 7:52 AM GMT
The Gujarat High Court has held that Yes Bank Ltd is a private bank and is not amenable to writ jurisdiction under Article 226 of the Constitution.A single bench of Justice Vaibhavi D. Nanavati observed that private financial institutions, carrying commercial activities or business would not come under the scope of 'State' as defined under Article 12, although, they are performing...
The Gujarat High Court has held that Yes Bank Ltd is a private bank and is not amenable to writ jurisdiction under Article 226 of the Constitution.
A single bench of Justice Vaibhavi D. Nanavati observed that private financial institutions, carrying commercial activities or business would not come under the scope of 'State' as defined under Article 12, although, they are performing public duties. It highlighted that such that private financial institutions do not receive any financial assistance from the Government and and no state protection is offered to such institutions.
"Normally, there is not any form of interference or partaking of the State or its authorities in the day-to-day affairs of the private financial institutions...to maintain a healthy, economic atmosphere, regulatory measures are adopted and statutes were framed keeping in mind that the malfunctioning of such institutions or companies in the banking business, would not affect the stability of the fiscal equilibrium...Even though, a private Bank could discharge the public duty, they cannot be said to be a State entity and they can benefit by absolving their obligations and liabilities by the State or State body."
The bench further made it clear that mere investment by the State Bank of India, having shareholding of 30% in Yes Bank, cannot be termed as a 'State'.
"The State Bank of India is not a government body, it is a statutory bank, and therefore, holding of shares by the SBI cannot be said to be a 'State' or Authority as defined under Article 12 of the Constitution of India," it said.
The Petitioner herein was seeking that the Bank be restrained from proceeding against it as a wilful defaulter, stating that the show cause notice issued to it regarding default in repayment was vague and did not refer the necessary particulars to facilitate the petitioner to answer the same. The Petitioner primarily contested that it had been making regular repayments to Yes Bank.
The Bank on the other hand raised preliminary objection as to the maintainability of the petition, considering that it was a Private Bank.
To rebut this submission, the Petitioner pointed out that the present shareholding of the Respondent Bank had undergone a change. For instance, the State Bank of India was holding 30% shares while the Life Insurance Corporation of India had 4.90% shareholding. Thus, the State had 'deep and persuasive control' of the Bank.
Notably, Justice Nanavati relied on Federal Bank Ltd. v. Sagar Thomas & ors, to elucidate:
"Merely because the Reserve Bank of India lays the banking policy in the interest of the banking system... as provided under Section 5(c)(a) of the Banking Regulation Act does not mean that the private companies carrying on the business of or commercial activity of banking, discharge any public function or public duty."
Additionally, reference was made to Ionic Metaliks v. Union of India, which had similar facts to observe that in that case the writ jurisdiction against Standard Chartered Bank was not applicable since it was a private bank. The case laid down the 'function test' to hold:
"The most important and vital consideration should be the "function" test as regards the maintainability of a writ application. If a public duty or public function is involved, any body, public or private, concerned or connection with that duty or function, and limited to that, would be subject to judicial scrutiny under the extraordinary writ jurisdiction of Article 226 of the Constitution of India."
The Single Judge Bench also held that the scope of 'State' was well-defined in Art 12 and that private financial institutions do not receive any financial assistant from the Government and therefore, no State protection could be offered to such institutions.
Keeping in view these principles and precedents and without venturing into the merits of the case, the High Court directed the Petitioner to seek appropriate legal remedy before the appropriate forum.
Case No.: C/SCA/16268/2020
Case Title: UNIVERSAL HOSPITAL A1 AIN LLC v/s M/S YES BANK LIMITED
Citation: 2022 LiveLaw (Guj) 294
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