Common Cause (A Regd. Society) vs Union Of India & Anr

Common Cause (A Regd. Society) ...... Petitioner

Versus

Union of India & Anr. ...... Respondents

ORDER

A.K. PATNAIK, J.

The petitioner is a society duly registered under the

Societies Registration Act, 1860 and is engaged in taking up

various common problems of the people for redressal.

Concerned with the increase of the non-recovered loans

advanced by the public and private sector banks in India

which have come to be known as Non-Performing Assets (for

short "NPAs"), the petitioner has filed this Writ Petition under

Article 32 of the Constitution as a Public Interest Litigation

praying for appropriate writs and directions. 2

2. The petitioner has stated in the Writ Petition that the

aggregate figure of NPAs worked out on the basis of data

compiled by the Banking Division of the Ministry of Finance is

Rs.43,577/- crores. According to the petitioner, non-recovery

of such huge amount of NPAs has resulted in substantial

funds of banks not being available for development of the

country's economy and this, in turn, has affected the citizens.

The petitioner has alleged that the steps taken by the Union

Government to recover the NPAs have not yielded positive

results and the Finance Ministry of the Union Government is

reported to have admitted that 27 nationalised banks had

written off a staggering amount of Rs.4,010/- crores as bad

debts during 1994-95 and 1995-96. According to the

petitioner, most of the bad debts are on account of defaults

made by men of substantial means and influence and if proper

checks are introduced to ensure that loans and advances are

not given to fraudulent borrowers, the NPAs will get

substantially reduced.

3. Mr. Prashant Bhushan, learned senior counsel appearing

for the petitioner, submitted that in the Writ Petition, as 3

originally filed, the petitioner has suggested various measures

to check the menace of increasing NPAs by evolving a proper

mechanism that would reduce the possibility of fresh loans

becoming NPAs, but subsequently this Court passed orders on

09.08.2005, 08.12.2005, 09.11.2006 and 30.01.2008 directing

the petitioner to make written suggestions to the Union

Government and also directing the Union Government to hold

meetings with the concerned functionaries to consider those

suggestions. He submitted that pursuant to these directions,

the petitioner has made various suggestions in its letters dated

02.08.2001, 25.08.2005 and 10.08.2006, but except for one

suggestion regarding the definition of "willful defaulter", all the

suggestions were rejected by the Union Government. He

submitted that the reasons given by the Government for

rejecting the suggestions are that if the suggestions are

adopted, the public sector banks will become less competitive

and will loose its customers to the private sector banks. He

explained that the suggestions made by the petitioner mainly

emphasized that the loans and advances must not be given

without fully checking the creditworthiness and past record of 4

the borrowers and that companies, which have been "willful

defaulters" in the past or whose subsidiary companies and

promoters have willfully defaulted in the past in repaying the

loans and advances, should not be given fresh loans and

advances. He also explained that the suggestions of the

petitioner also stress on the greater accountability of the bank

officials and on the personal liability of the promoters by

making personal guarantee of the promoters mandatory in

every case. He vehemently argued that the Union Government

could not possibly have any objection to these suggestions

made by the petitioner and the reasons given in the affidavit of

Shri Dharam Paul Bhardwaj, Under Secretary, Ministry of

Finance, Department of Economic Affairs (Banking Division)

filed on behalf of the Union Government for not accepting the

suggestions are frivolous. On behalf of the petitioner, he

urged the Court to issue appropriate writs and directions to

the respondents to implement the suggestions made by the

petitioner.

4. Mr. Gopal Subramanium, learned Solicitor General for

the Union of India, however, submitted, relying on the 5

additional affidavit, that a number of steps have already been

taken by the Ministry of Finance, Government of India, to

address the issue of NPAs and bank frauds and these are:

action taken under the Recovery of Debts due to Banks and

Financial Institutions Act, 1993 (for short "the DRT Act") to

recover the NPAs of Banks, the enactment of the Securitization

and Reconstruction of Financial Assets and Enforcement of

Security Interest Act, 2002 (for short "the SARFAESI Act")

which empowers the banks to realize the securities furnished

by the borrowers to the bank and to recover the loans and

advances from the defaulted borrowers, the enactment of the

Credit Information Companies (Regulation) Act, 2005 which

provides for the setting up of Credit Information Companies for

collection, sharing and dissemination of credit information,

which will help in arresting fresh accretion of NPAs and

framing of the rules under the Credit Information Companies

(Regulation) Act, 2005, which would ensure that the Credit

Information Companies collect, process and collate accurate

and complete data relating to the borrowers, so that fresh

loans and advances given to the borrowers do not become 6

sticky. He submitted that besides the legislative measures,

the Reserve Bank of India has been circulating a list of non-

suit filed `doubtful' and `loss' borrowal accounts of Rs. 1 crore

and above, on 31st March and on 30th September every year to

the banks and financial institutions for their confidential use.

He submitted that the banks and the Union Government also

refer cases of bank frauds to the C.B.I. wherever considered

necessary and appropriate and that the Union Government

has set up in July, 2003 the "Serious Fraud Investigation

Office" (SFIO), which comprises officers specialized in various

disciplines, such as Taxation, Customs, Central Excise,

Information Technology, Company Law, Capital Market,

Banking, Investigation/ Police, Forensic Audit, etc. and this

expert and experienced body has already started functioning

since October, 2003 and has been assigned a total of 51 cases

of serious frauds up to 30.04.2008 out of which 30 cases have

already been investigated and 18 cases are under

investigation. He explained that SFIO is presently working

under the existing provisions of the Companies Act but

legislation will be brought to invest the SFIO with adequate 7

reach and powers. He submitted that the Central Government

has already constituted a Committee of Experts under the

Chairmanship of the Ex-Deputy Governor of the Reserve Bank

of India to make recommendations regarding the SFIO and the

report of this Committee of Experts as and when received will

be considered by the Union Government. He argued that since

adequate mechanism presently exists to tackle the issue of

NPAs and bank frauds and there has in fact been a sharp

decrease in the level of NPAs in scheduled commercial banks

from 4.4% of their net advances as on 31.03.2003 to 1.0% as

on 31.03.2008, this Court should not issue any writs or

directions, as prayed for, by the petitioner.

5. In rejoinder, Mr. Prashant Bhushan submitted that the

reduction in NPAs, as claimed by the Union Government, has

come about by waivers, write-offs, rescheduling of repayments,

moratoriums and one-time settlements but all this has

actually resulted in loss of substantial amount of public funds.

He submitted that as per the report of the Reserve Bank of

India on the trend and progress of banking in India for 2004-

2005, total NPAs recovered by the banks amounted to 8

Rs.20,568/-crore and out of this, an amount of Rs.14,506/-

crore was recovered through asset reconstruction companies

and these recoveries are nothing but purchase of NPAs from

the banks by another set of public companies. He submitted

that the report of the Reserve Bank of India would further

show that during 2004-2005 an additional Rs.16,000 crore of

NPAs have accrued. He submitted that the measures taken by

the Union Government to reduce the NPAs, therefore, have not

been effective. He finally submitted that without statutory

power and without qualified manpower, the SFIO would be

teeth-less and incompetent and this Court should direct the

Union Government to make the SFIO an independent

statutory body consisting of qualified manpower as suggested

by Mr. Harish Salve, learned senior Counsel.

6. Mr. Bhushan cited the decision of this Court in Vishaka

and Others v. State of Rajasthan and Others [(1997) 6 SCC

241] for the proposition that if there is no enacted legislation

to provide for the effective enforcement of any fundamental

right, this Court can issue guidelines/directions for the

effective enforcement of the fundamental right under Article 32 9

of the Constitution, which would be law under Article 141 of

the Constitution, till a suitable legislation is enacted to occupy

the field. He also relied on the decision in Vineet Narian &

Ors. v. Union of India & Anr. [(1998) 1 SCC 226] in which this

Court has observed that the judiciary must step in, in exercise

of its constitutional obligations under Article 32 read with

Article 142 of the Constitution, to provide a solution till such

time as the legislature acts to perform its role by enacting

proper legislation to cover the field. He submitted that in case

this Court is not inclined to issue directions or writs in the

matter, the Court can at least direct that the suggestions

made by the petitioner for checking the NPAs in future be

referred to an independent expert committee.

7. In Vishaka and Others v. State of Rajasthan and Others

(supra) cited by Mr. Bhushan, this Court held that in the

absence of enacted law to provide for the effective enforcement

of the basic human right of gender equality and guarantee

against sexual harassment and abuse, more particularly

against sexual harassment at workplaces, some guidelines

and norms for due observance at all workplaces or other 10

institutions were required to be laid down by this Court until a

legislation is enacted for the purpose and this Court made it

clear that this was required to be done in exercise of the power

available under Article 32 of the Constitution for enforcement

of the Fundamental rights guaranteed under Articles 14, 15,

19(1)(g) and 21 of the Constitution. Similarly, in Vineet

Narain and Others v. Union of India and Another (supra), this

Court issued some directions for rigid compliance till such

time as the legislature steps in to substitute them by proper

legislation and these directions were made under Article 32

read with Article 142 of the Constitution to implement the rule

of law wherein the concept of equality enshrined in Article 14

is embedded. Hence, in both the cases cited by Mr. Prashant

Bhushan, the Court issued writs and directions for

enforcement of fundamental rights conferred by Part-III of the

Constitution, but in the present case, the petitioner has not

made out a case that for enforcement of any right guaranteed

under Part-III of the Constitution, writs or directions are

required to be issued by this Court under Article 32 of the

Constitution.

11

8. Moreover, in Vishaka and Others v. State of Rajasthan

and Others (supra), this Court laid down guidelines and norms

for due observance at work places and institutions to prevent

sexual harassment of working women, because there was no

law to prevent such sexual harassment. In the present case,

we find from the additional affidavit filed on behalf of the

Union of India that through various legislative measures such

as the DRT Act, the SARFAESI Act, 2002, the Credit

Information Companies (Regulation) Act, 2005 and through

some administrative measures, the respondents are trying to

reduce the number and amount of NPAs and to detect and

check bank frauds in future.

9. According to Mr. Prashant Bhushan, however, these

legislative and administrative measures taken by the Union

Government have not been effective in reducing and

controlling the NPAs. Whether legislative and administrative

measures taken by the Union Government have been effective

or not is not for the Court but for the Union Government and

Parliament to consider because reduction and control of NPAs

are not within the domain of judiciary but within the domain 12

of the Executive and Legislature under our Constitution.

Moreover, as has been observed by P.N. Bhagwati, J. in State

of M.P. and Others v. Nandlal Jaiswal and Others [(1986) 4

SCC 566] in field of economic activities, there has to be

judicial deference to Legislative and Executive judgment and

decisions on complex economic matters are to be based on

experimentation or what one may call `trial and error method'.

It is therefore not for Courts to sit in judgment whether a

particular policy decision of the Government is effective or not,

but for Parliament to debate and decide on the policy decision. In a recent decision of this Court in Villianur Iyarkkai

Padukappu Maiyam v. Union of India and Others [(2009) 7 SCC

561], Panchal, J. writing the judgment on behalf of a three-

Judge Bench observed:

"It is neither within the domain of the courts nor the scope of judicial review to embark upon an enquiry as to whether a particular public policy is wise or whether better public policy can be evolved. Nor are the courts inclined to strike down a policy at the behest of a petitioner merely because it has been urged that a different policy would have been fairer or wiser or more scientific or more logical. Wisdom and advisability of economic policy are ordinarily not amenable to judicial review. In matters relating to economic issues the Government has, while 13

taking a decision, right to "trial and error" as long as both trial and error are bona fide and within the limits of the authority. For testing the correctness of a policy, the appropriate forum is Parliament and not the courts."

10. The Union Government, however, must ensure that SFIO

is effective in detecting and preventing bank frauds by

influential people. We find that the Central Government has

constituted a Committee of Experts under the Chairmanship

of Shri Vepa Kamesam, Ex-Deputy Governor of Reserve Bank

of India, with the following terms of reference:

(a) Assessment of the need for and details of a separate stature to govern the constitution and functioning of SFIO;

(b) The nature and details of the legislative changes as may be required in existing laws, to enable effective functioning of SFIO including prosecution of offences detected by it;

(c) The mechanism for referral of cases to SFIO and coordination of activities of SFIO with other agencies/organizations of the Central and State Governments, including investigating;

(d) Powers of SFIO and its investigation officers;

(e) Specification of offences and penalties to enable effective conduct of investigation agencies and the need for Special Courts for trial of corporate fraud cases; and 14

(f) Other matters consequential to or in pursuance of the above.

We have no doubt that this Committee of Experts under the

Chairmanship of Ex-Deputy Governor of Reserve Bank of India

will suggest effective measures, legislative or administrative, to

ensure that bank frauds are prevented in future and the NPAs

are kept to the minimum. We hope and trust that this

Committee under the Chairmanship of Ex-Deputy Governor of

Reserve Bank of India will consider the suggestion to make the

SFIO (or any similar body) a statutory authority having

sufficient powers and having the required autonomy to be able

to effectively deal with the problems of bank frauds and NPAs.

A copy of this order will be placed by the respondent No.1

before the Committee of Experts.

11. The writ petition and the application for impleadment/

intervention stand disposed of. No costs.

..........................J. (J. M. Panchal)

..........................J. New Delhi, (A. K. Patnaik) August 18, 2010.