Introduction:
The Calcutta High Court bench of Chief Justice T. S. Sivagnanam and Justice Hiranmay Bhattacharyya ruled that Axis Bank, despite adhering to Reserve Bank of India (RBI) guidelines, does not perform public functions that subject it to writ jurisdiction. The decision emerged from a case involving Indian Cable Net Company Limited, which had disputes with Axis Bank over the issuance of a no-dues certificate and the return of securities following the repayment of a loan.
Indian Cable Net Company Limited, a subsidiary of SITI Networks Limited and a multi-system operator of cable television, entered into a Term Loan Agreement with Axis Bank on March 30, 2019. The company secured credit facilities by depositing title deeds of a property and SITI pledged 2,59,11,689 shares to secure the loan. Despite repaying the loan fully, Indian Cable Net Company Limited alleged that Axis Bank failed to issue a no-dues certificate and return the securities, prompting multiple requests and complaints to the Ombudsman of the RBI, which were rejected. Subsequently, Indian Cable Net Company Limited filed a writ petition, which the Single Judge allowed, setting aside the Ombudsman’s order and directing Axis Bank to issue the no-dues certificate and return the securities. Axis Bank then approached the High Court to challenge this decision.
Arguments of Both Sides:
Indian Cable Net Company Limited argued that they complied with all terms of the credit facilities and fully repaid the loan. They contended that Axis Bank’s refusal to issue the no-dues certificate and return the pledged securities was unjust and amounted to a deficiency in service. The company pointed to their multiple attempts to resolve the issue through communication and complaints to the RBI Ombudsman, which were ignored or dismissed without sufficient rationale. They asserted that this inaction forced them to seek judicial intervention.
Axis Bank contended that due to SITI’s default in repayment, the account was declared a Non-Performing Asset (NPA). The bank asserted a contractual right and a right of lien under Section 171 of the Indian Contract Act to retain the pledged shares and title deeds. Axis Bank also challenged the maintainability of the writ petition, arguing that as a private entity, it does not qualify as a “State” under Article 12 of the Constitution of India and its operations do not constitute a public function. The bank relied on precedents, including the Supreme Court’s decisions in Phoenix ARC Private Limited vs. Vishwa Bharati Vidya Mandir and Federal Bank Ltd. vs. Sagar Thomas, to support their stance that following RBI guidelines does not equate to performing public duties.
Court’s Judgement:
The Calcutta High Court, after considering the arguments, referred to key decisions by the Supreme Court. It noted that private entities like Axis Bank, even if regulated by RBI, do not perform public functions merely by following regulatory guidelines. The court highlighted the Supreme Court’s stance in Phoenix ARC Private Limited vs. Vishwa Bharati Vidya Mandir and Federal Bank Ltd. vs. Sagar Thomas, where it was held that private banks and Asset Reconstruction Companies (ARCs) do not perform public duties merely by adhering to regulatory measures.
The court observed that despite Axis Bank’s regulatory obligations, it does not perform public functions that would subject it to writ jurisdiction. The bench noted that Indian Cable Net Company Limited made numerous representations to the bank to return securities post-loan repayment, which were ignored, leading them to file a complaint with the Ombudsman. The Ombudsman’s dismissal of the complaint was also critiqued for lacking detailed rationale and for not adhering to principles of natural justice.
Furthermore, the court considered the 2021 Scheme designed to resolve customer grievances expeditiously. Under this scheme, banks are categorized as “Regulated Entities” under RBI’s purview, obligating the Ombudsman to address complaints about service deficiencies. The court emphasized that quasi-judicial authorities like the Ombudsman must provide reasoned decisions adhering to natural justice principles. It noted that the Ombudsman’s rejection of the complaint lacked sufficient reasoning or opportunities for both parties to be heard.
The court ruled that Axis Bank’s refusal to return the securities constituted a deficiency in service under the 2021 Scheme. It concluded that the bank’s failure to return the title deeds and issue a no-dues certificate, despite the repayment of the credit facilities, amounted to a deficiency in service. Consequently, the appeal was allowed in part, upholding the Single Judge’s directive to Axis Bank to issue the no-dues certificate and return the securities.